LMI Aerospace (LMIA) 8-K/A Financial Statements and Exhibits

Exhibit 99.1

TECH AEROSPACE GROUP, LLC AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

(RESTATED)

Year Ended December 31, 2009

INDEPENDENT AUDITORS' REPORT

To the Members

TECH AEROSPACE GROUP, LLC

We have audited the accompanying consolidated balance sheet of Tech Aerospace Group, LLC and Subsidiaries (the Company) as of December 31, 2009 and the related consolidated statements of income, members’ equity and cash flows for the year then ended.  These consolidated financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with U.S. generally accepted auditing standards.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Tech Aerospace Group, LLC and subsidiaries as of December 31, 2009, and the results of their operations and their cash flows for the year then ended in conformity with U.S. generally accepted accounting principles.

As described in note 2 to the consolidated financial statements, the Company has restated its December 31, 2009 consolidated financial statements.

/s/ Mayer Hoffman McCann P.C.

Mayer Hoffman McCann P.C.

Leawood, Kansas

December 24, 2012

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TECH AEROSPACE GROUP, LLC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

December 31, 2009

(Restated)

A S S E T S
CURRENT ASSETS
Cash	$	467,704
Trade receivables, less allowance of $40,771		8,488,100
Inventories		20,807,727
Prepaid expenses		291,649
Deferred income taxes		12,260
TOTAL CURRENT ASSETS		30,067,440
PROPERTY AND EQUIPMENT, net		18,699,766
OTHER ASSETS
Other assets		564,968
Deferred financing costs, net		154,167
Intangible assets, net		32,067,142
Goodwill		14,272,588
TOTAL OTHER ASSETS		47,058,865
TOTAL ASSETS	$	95,826,071
L I A B I L I T I E S
CURRENT LIABILITIES
Line of credit	$	8,926,596
Accounts payable		6,199,008
Accrued expenses		2,066,158
Deferred revenue		2,172,493
Current portion of long-term debt		2,802,915
TOTAL CURRENT LIABILITIES		22,167,170
LONG-TERM DEBT, net of current portion		19,349,762
SUBORDINATED DEBT, net of current portion		6,078,744
DEFERRED INCOME TAXES		3,167,419
OTHER LONG-TERM LIABILITIES		501,229
TOTAL LIABILITIES		51,264,324
M E M B E R S' E Q U I T Y
MEMBERS' CONTRIBUTIONS		45,245,854
MEMBERS' DISTRIBUTIONS		(471,830	)
MEMBERS' DEFICIT		(212,277	)
MEMBERS' EQUITY		44,561,747
TOTAL LIABILITIES AND MEMBERS' EQUITY	$	95,826,071

See Notes to Consolidated Financial Statements

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TECH AEROSPACE GROUP, LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME

Year Ended December 31, 2009

(Restated)

NET SALES	$	34,714,649
COST OF SALES		27,001,179
GROSS PROFIT		7,713,470
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		3,084,018
AMORTIZATION OF INTANGIBLE ASSETS		1,729,681
OPERATING INCOME		2,899,771
OTHER INCOME (EXPENSE)
Interest expense		(1,061,052	)
Management fee		(434,667	)
Miscellaneous expense		(141,696	)
Acquisition costs		(787,684	)
Gain on disposal of property and equipment		2,952
TOTAL OTHER INCOME (EXPENSE)		(2,422,147	)
INCOME BEFORE INCOME TAXES		477,624
INCOME TAX BENEFIT		(44,441	)
NET INCOME	$	522,065

See Notes to Consolidated Financial Statements

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TECH AEROSPACE GROUP, LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF MEMBERS’ EQUITY

Year Ended December 31, 2009

(Restated)

	Members'		Members'			Members'
	Contributions		Distributions			Deficit			Total
Balance, January 1, 2009 (restated)	$	13,607,538	$	-		$	(734,342	)	$	12,873,196
Conversion of member receivable to equity		1,026,316		-			-			1,026,316
Contributions by members		9,430,000		-			-			9,430,000
Equity issued in connection with business acquisition		21,182,000		-			-			21,182,000
Distributions to members		-		(471,830	)		-			(471,830	)
Net income (restated)		-		-			522,065			522,065
Balance, December 31, 2009 (restated)	$	45,245,854	$	(471,830	)	$	(212,277	)	$	44,561,747

See Notes to Consolidated Financial Statements

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TECH AEROSPACE GROUP, LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

Year Ended December 31, 2009

(Restated)

CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	522,065
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation		2,370,465
Amortization of intangible assets		1,729,681
Amortization of pre-production costs		30,775
Amortization of deferred financing costs		134,449
Deferred income tax benefit		(119,753	)
Loss on disposal of property and equipment		2,952
Net change in operating assets and liabilities:
Trade receivables		491,060
Inventories		(2,371,894	)
Prepaid expenses and other assets		348,747
Accounts payable		(1,195,482	)
Accrued expenses and other liabilities		(993,919	)
Deferred revenue		1,075,718
NET CASH FLOWS FROM OPERATING ACTIVITIES		2,024,864
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment		(1,222,477	)
Payment of pre-production costs		(444,144	)
Acquisition of CT Systems, LLC, net of cash acquired		(3,623,399	)
NET CASH FLOWS FROM INVESTING ACTIVITIES		(5,290,020	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net activity on line of credit		(14,354,986	)
Repayment of long-term debt		(13,530,239	)
Proceeds from long-term debt		22,000,000
Payment of financing costs		(288,616	)
Cash contributions from members		9,430,000
Distributions to members		(471,830	)
Change in bank overdraft		187,570
NET CASH FLOWS FROM FINANCING ACTIVITIES		2,971,899
NET CHANGE IN CASH		(293,257	)
CASH, BEGINNING OF PERIOD		760,961
CASH, END OF PERIOD	$	467,704

SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash paid for:
Interest	$	1,348,160
Income taxes	$	314,478
Noncash investing and financing activities:
Conversion of subordinated debt into ownership interest	$	1,026,316
Redemption of ownership units by forgiving members' note receivable	$	418,580

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TECH AEROSPACE GROUP, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)

(1) Summary of significant accounting policies

Nature of operations – Tech Aerospace Group, LLC (TAG) is a parent holding company of the following subsidiaries:

Precision Metalcraft, LLC (PML), DACA Machine & Tool, LLC (DACA), and Accu-Tec, LLC (ATE) are manufacturers of production parts, tooling, and commercial and military aircraft components.  The parts and tooling are precision machined and/or manufactured to the customer’s drawings and the work is performed under fixed-priced contracts.  ATE is located in Coweta, Oklahoma, DACA is located in Dutzow, Missouri, and PML is located in Wichita, Kansas.

CT Systems, LLC (CT, acquired on November 13, 2009) is a contract manufacturer of electronic and electrical wire harnesses, cable assemblies and mechanical sub-assemblies for air and rail traffic control, medical equipment, telecommunications and heavy equipment industries. Two of CT’s manufacturing facilities are located in Lenexa and Cottonwood Falls, Kansas.  The facility in Cottonwood Falls, Kansas specializes in the fabrication of major and minor assemblies for the commercial aerospace market.  Polster Tool Engineering, Inc. (a wholly owned subsidiary of CT, PTE), located in St. Louis, Missouri, and CT’s other facility in Fredonia, Kansas perform high-precision machining and assembly of parts for aerospace, defense and commercial customers.

Together, these entities are referred to as the Company.

Principles of consolidation - The accompanying consolidated financial statements include the accounts of TAG and its wholly owned subsidiaries, PML, ATE, CT and DACA.  The accompanying consolidated financial statements include the accounts of CT for the period from November 13, 2009 through December 31, 2009.  All significant intercompany balances and transactions have been eliminated.

Recent accounting pronouncements - Pursuant to Statement of Financial Accounting Standards No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB Statement No. 162, the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) became the sole source of authoritative accounting principles generally accepted in the United States (GAAP) for annual periods ending after September 15, 2009.  The Company adopted this standard for the year ended December 31, 2009.  References to specific accounting standards in the footnotes to the consolidated financial statements have been changed to refer to the appropriate topics of the ASC.

Reorganization - Tech Aerospace Group, LLC was organized on September 14, 2009 in accordance with the Limited Liability Act of the State of Delaware.  On November 13, 2009, CT, PML, ATE, and DACA (the Subsidiaries) entered into an Interest Purchase and Contribution Agreement with TAG whereby PML, ATE, and DACA, each under common control, contributed 100% of their membership interests to TAG as part of a reorganization transaction.  All units of ownership have proportionately equal rights.  Pursuant to the guidance provided by ASC Topic Control of Partnerships and Similar Entities, the Company determined that a change of control as a result of the merger did not take place.  Therefore, no new basis of accounting was created and a full year of operating results was appropriately included in the consolidated financial statements for the entities under common control.  The transaction, as it relates to CT was accounted for as a business combination as discussed further in note 2.

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TECH AEROSPACE GROUP, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)

(1) Summary of significant accounting policies (continued)

Use of estimates - The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  Significant estimates used in preparing the consolidated financial statements include the estimated fair value of net assets acquired in a business combination, determining the remaining estimated cost to complete a contract accounted for under the unit of delivery method, capitalized pre-production costs, and reserve for inventory obsolescence.  Actual results could differ from these estimates.

Revenue recognition - Certain of the Company’s revenues are recognized under a long-term, fixed priced contract, requiring delivery of units over several years.  For this contract, the Company recognizes revenue under the contract method of accounting and records sales and costs in accordance with the units of delivery method.  The Company follows the requirements of FASB ASC Topic, Accounting for Construction-Type and Production-Type Contracts, using the cumulative catch-up method in accounting for revisions in estimates. Under the cumulative catch-up method, the impact of revisions in estimates is recognized immediately when changes in estimated contract profitability become known.

A margin percentage is estimated based on the difference between total revenues and total costs of a contract.  Total revenues at any given time include actual historical revenues up to that time plus future estimated revenues. Total costs at any given time include actual historical costs up to that time plus future estimated costs.  Estimated revenues include negotiated or expected values for units delivered, estimates of probable recoveries asserted against the customer for changes in specifications, and price adjustments for contract changes.  Costs include the estimated cost of certain pre-production effort (including non-recurring engineering and planning subsequent to completion of final design) plus the estimated cost of manufacturing a specified number of production units.  Estimates take into account assumptions relative to future labor performance and rates, and projections relative to material and overhead costs including expected “learning curve” cost reductions over the term of the contract.  The specified number of production units used to establish the profit margin is predicated upon contractual terms and customer’s production forecasts.  The assumed period covered is generally equal to the period specified in the contract or the future period for which the Company can project reasonably dependable cost estimates.  Estimated revenues and costs also take into account the expected impact of specific contingencies that the Company believes are probable.

Estimates of revenues and costs for the contract span a period of multiple years and are based on a substantial number of underlying assumptions.  The Company believes that the underlying assumptions are sufficiently reliable to provide a reasonable estimate of the profit to be generated.  However, due to the significant length of time over which revenue streams will be generated, the variability of the revenue and cost streams can be significant if the assumptions change.

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TECH AEROSPACE GROUP, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)

(1) Summary of significant accounting policies (continued)

Revenue recognition (continued) -The Company has entered into Vendor Owned Inventory (VOI) arrangements that cover certain products sold to a significant customer. Pursuant to those arrangements, the Company will hold title to the products until they are used by the customer.  The Company has determined that because substantially all risks and rewards of product ownership have not passed to the customer upon delivery, including title, the Company does not recognize revenue relating to these products until utilized by the customer.  As discussed in note 2, the Company previously accounted for revenue on these contracts upon delivery to the customer and has restated the consolidated financial statements to reflect the change in accounting.

For all other arrangements not recognized under the contract method of accounting, the Company recognizes revenues at the point the sale is earned and/or the point of passage of title, which is generally at the time of shipment.  Revenues are recorded net of returns and discounts.  Shipping and handling costs are included in cost of sales.  Fees received in advance of the order completion and shipment are included in deferred revenue until earned.

Income taxes - With the exception of PTE, the Company is organized as a limited liability company whereby the members of the Company are taxed under the partnership provisions of the Internal Revenue Code.  Under these provisions, a limited liability company does not pay income taxes on their income, nor is it allowed a net operating loss carryforward or carryback as a deduction.  Instead, the members are individually liable for income tax on a limited liability company’s taxable income or loss.

PTE is taxed as a C-Corporation under the Internal Revenue Code.  PTE’s provision for income taxes is computed using the asset and liability method, as prescribed by ASC Topic, Income Taxes, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities.

In July 2006, the FASB issued ASC Topic, Accounting for Uncertainty in Income Taxes, which clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements and applies to all tax positions related to income taxes under ASC Topic Income Taxes.  The Company adopted the provisions discussed above on January 1, 2009 and did not recognize any additional tax liability as a result of the implementation. The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions.  The Company is no longer subject to U.S. federal, or state and local income tax examinations by tax authorities for years before 2005.

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TECH AEROSPACE GROUP, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)

(1) Summary of significant accounting policies (continued)

Fair value of financial instruments - The Company is subject to the provisions of ASC Topic, Fair Value Measurement for their financial and non-financial assets and liabilities which the Company has recognized or disclosed at fair value on a non-recurring basis. This topic, which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an ordinary transaction between market participants at the measurement date, establishes a framework for measuring fair value in accordance with GAAP and expands disclosures about fair value measurements for financial assets and liabilities.  This topic also establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value.  The fair value hierarchy gives the highest priority to quoted prices (Level 1) and the lowest priority to unobservable inputs (Level 3).  The three levels of inputs used to measure fair value are as follows:

· Level 1 - Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

· Level 2 - Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

· Level 3 - Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

Cash - Cash consists of bank demand deposits.  At times during the year, the Company’s cash in bank balances exceeded the federally insured limits.  The Company monitors the financial strength of its banks and feels the risk of loss is remote.

Trade receivables - The Company grants credit to its customers and generally does not require collateral to secure payment of accounts receivable.  Accounts receivable are carried at cost, less an allowance for doubtful accounts, and do not accrue any finance or interest charges.  Management routinely reviews accounts receivable and an allowance for doubtful accounts is provided when amounts are determined to be uncollectible.  An account is written off after all collection efforts have been exhausted.

Inventories - Raw materials, work-in-process, and finished goods that do not relate to long-term, fixed price contracts, including inventory held by a customer and subject to the VOI arrangements, are stated at the lower of cost, determined on the first-in, first-out (FIFO) method, or market.  Market is based upon realizable value less normal gross profit.

Inventoried costs attributed to units delivered under long-term contracts are based on the estimated average cost of all units expected to be produced and are determined under the learning curve concept which anticipates a predictable decrease in unit costs as tasks and production techniques become more efficient through repetition.  This usually results in an increase in inventory (referred to as “excess-over-average” or “deferred production costs”) during the early years of a contract.  These costs are deferred only to the extent the amount of actual or expected excess-over-average is reasonably expected to be fully offset by lower-than-average costs in future periods of a contract.  If in-process inventory plus estimated costs to complete a specific contract exceed the anticipated remaining sales value of such contract, such excess is charged to cost of sales in the period the loss becomes known, thus reducing inventory to estimated realizable value.

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TECH AEROSPACE GROUP, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)

(1) Summary of significant accounting policies (continued)

Pre-production costs - The Company accounts for pre-production costs in accordance with ASC Topic, Other Assets and Deferred Costs.  The Company has capitalized $648,295 of pre-production costs as of December 31, 2009 and which is included in other assets and property and equipment on the accompanying consolidated balance sheet.  These costs are amortized over the life of the related contract.  The Company amortized $30,775 of pre-production costs for the period ended December 31, 2009.

Property and equipment - Property and equipment are recorded at cost.  Depreciation is computed using the straight-line method over the following estimated useful lives:

Assets	Estimated Useful Lives
Buildings	39 – 40 years
Furniture and fixtures	5 – 7 years
Machinery and equipment	3 – 7 years
Computer equipment and software	3 – 7 years
Tooling	3 – 7 years
Vehicles and transportation equipment	5 – 7 years
Leasehold improvements	7 – 39 years

Leasehold improvements are depreciated over the related lease term or estimated useful lives of the improvements, whichever is shorter.

Deferred financing costs - Deferred financing costs, which represent fees and other costs incurred in connection with obtaining debt, are amortized using the effective-interest method, over the term of the loan and are included in interest expense.  Amortization of deferred financing costs for the year ended December 31, 2009 was $134,449.

Goodwill - Goodwill represents the excess cost over fair value of net assets acquired through acquisitions.  In accordance with the provisions of FASB ASC topic Goodwill and Other Intangible Assets, goodwill is reviewed by management for impairment annually or whenever events or changes in circumstance indicate the carrying amount may not be recoverable.  If indicators of impairment are present, the determination of the amount of impairment is based on a combination of the fair value of the goodwill as calculated by an independent third-party appraiser and management’s judgment as to the discounted future operating cash flows to be generated from the assets throughout their remaining estimated useful lives.  Based on guidance provided by a third party appraiser, the fair value of the Company’s single reportable unit exceeded its carrying amount.  Therefore, management determined that no impairment loss attributable to goodwill of the single reportable unit had occurred during the year ended December 31, 2009.

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TECH AEROSPACE GROUP, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)

(1) Summary of significant accounting policies (continued)

Intangible assets - Intangible assets consist of customer relationships, non-compete agreements, engineering drawings, and backlog which were a result of acquisitions.  Customer relationships and engineering drawings are being amortized on a straight-line basis over their estimated economic benefit period of 9 to 11 years.  Non-compete agreements, trademarks and backlog are being amortized on a straight-line basis over their estimated economic benefit period, generally from two to five years.

Impairment of long-lived assets - The Company assesses the impairment of long-lived assets, which include property and equipment and intangible assets, whenever events or changes in circumstances indicate that such assets might be impaired and the carrying value may not be recoverable.  An impairment loss attributable to long-lived assets of $78,278 was recognized for the year ended December 31, 2009.

Product warranty cost - The Company evaluates the need to make a provision for estimated warranty-related costs based on actual, historical return rates and anticipated return rates.  Based on favorable historical experience, a provision was not required as of December 31, 2009.

(2) Restatements

The Company’s previous consolidated financial statements reflected the acquisition of CT in a manner similar to a pooling of interests.  During 2012, management changed their accounting policy and on October 22, 2012 restated the previously issued consolidated financial statements as of and for the year ended December 31, 2009 in order to reflect the business combination in accordance with generally accepted accounting principles.  Subsequent to that date, the Company determined the consolidated financial statements should be restated to change the accounting for revenue recognition for VOI arrangements.

Revenue Recognition

The Company has restated net sales associated with the VOI arrangements.  The VOI arrangements originated in 2009 and included contractual agreements between various divisions of the Company and an unrelated third party (the VOI Customer).  The Company’s previous accounting policy for revenue recognition was to recognize revenue as product was delivered as in management’s opinion, the contractual agreements coupled with a verbal arrangement, supported the conclusion that the VOI Customer enjoyed all of the rights and responsibilities of ownership at the time of receipt of the products.

However, the Company has subsequently determined that because the contracts indicated that title does not transfer until the products’ use, the Company should not recognize revenue and related cost of sales until the VOI Customer uses the product.  As a result, the Company has derecognized revenue from sales related to product shipped to but not yet used by the VOI Customer which resulted in a decrease in net sales of $1,346,605 and a decrease in cost of sales of $967,938 for the year ended December 31, 2009.

In addition, the Company also restated certain other misstatements that it identified in connection with this restatement.

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TECH AEROSPACE GROUP, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)

(2) Restatements (continued)

Business Combination

Additionally, the Company restated the consolidated financial statements as of and for the year ended December 31, 2009, issued on October 22, 2012, to account for the acquisition of CT.  On November 13, 2009, TAG acquired all of the outstanding equity of CT.  Consideration paid of $29,807,000 consisted of cash of $8,625,000, which was previously recorded as a members’ distribution and equity of the Company with an estimated fair value of $21,182,000, which was determined using a combination of market transactions for comparable companies as well as an income approach using the discounted future estimated cash flows.  The acquisition was consummated in order to develop operating synergies and to better serve shared customers.

Prior to October 22, 2012, the Company had not previously recorded its acquisition of the controlling financial interests in CT as a business combination under the acquisition method (ASC 805) as of and for the year ended December 31, 2009. The acquisition method requires that CT’s assets acquired and liabilities assumed be measured and recognized at fair value and goodwill recorded for the excess of the consideration paid over the fair value of its identifiable net assets. TAG has previously reported this transaction in a manner similar to a pooling of interests whereby CT’s assets and liabilities were recorded at their historical carrying amount on the date of the transaction and the revenues and expenses for the period prior to the acquisition were included in the operating results for the year ended December 31, 2009.  As a result, the difference between the carrying amount and fair value of the net assets acquired on the date of acquisition was not recognized.

The following table includes information regarding the original carrying value of the net assets acquired as previously reported under the pooling of interests method, adjustments to restate the acquisition using the acquisition method, and estimated fair value of the net assets acquired on November 13, 2009.

	Pooling of			Fair Value			Acquisition Date
	Interests			Adjustments			Fair Value
Cash	$	1,601		$	-		$	1,601
Accounts receivable		5,042,690			-			5,042,690
Inventory		9,825,282			211,315			10,036,597
Prepaid expenses		351,494			-			351,494
Property and equipment		6,240,252			(65,435	)		6,174,817
Other assets		62,660			(62,660	)		-
Identifiable intangible assets		3,551,069			21,996,931			25,548,000
Goodwill		9,710,583			(3,367,612	)		6,342,971
Accounts payable and accrued liabilities		(5,064,240	)		13,889			(5,050,351	)
Other liabilities		(11,356	)		-			(11,356	)
Bank debt		(15,354,551	)		-			(15,354,551	)
Deferred income taxes		(498,912	)		(2,776,000	)		(3,274,912	)
Net assets	$	13,856,572		$	15,950,428		$	29,807,000

Goodwill recognized of $6,342,971 is not tax deductible and relates to the synergies the Company expects to realize as a result of the transaction.

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TECH AEROSPACE GROUP, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)

(2) Restatements (continued)

The bank debt acquired consists primarily of a line of credit which expired in February 2010. The fair value of the debt is impacted by changes in CT’s credit spread as well as market rates for debt with similar characteristics (typically measured by the credit default swap rates).  Based on the short duration of the debt and the Company’s analysis of changes in credit spreads, the fair value of the debt has been estimated to equal its carrying value.

The accompanying consolidated financial statements as of and for the year ended December 31, 2009 include adjustments necessary to report the acquisition of CT using the acquisition method as required by ASC 805.

Adjustments recorded as a result of each restatement of the consolidated financial statements as of and for the year ended December 31, 2009 are as follows:

	Consolidated Balance Sheet
	As of December 31, 2009
	As Previously			Oct 22, 2012			Dec 24, 2012
	Reported			Adjustments			Adjustments			Restated
Current assets:
Cash	$	467,704		$	-		$	-		$	467,704
Trade receivables, net		9,834,705			-			(1,346,605	)		8,488,100
Inventories		20,277,789			(438,000	)		967,938			20,807,727
Prepaid expenses		291,649			-			-			291,649
Deferred income taxes		12,260			-			-			12,260
Total current assets		30,884,107			(438,000	)		(378,667	)		30,067,440
Property and equipment, net		18,843,478			(65,434	)		(78,278	)		18,699,766
Other assets:
Other assets		564,968			-			-			564,968
Deferred financing costs, net		154,167			-			-			154,167
Intangible assets, net		10,446,515			21,620,627			-			32,067,142
Goodwill		17,640,200			(3,617,679	)		250,067			14,272,588
Total other assets		28,805,850			18,002,948			250,067			47,058,865
Total assets	$	78,533,435		$	17,499,514		$	(206,878	)	$	95,826,071
Current liabilities:
Line of credit	$	8,926,596		$	-		$	-		$	8,926,596
Accounts payable		6,199,008			-			-			6,199,008
Accrued expenses		1,944,047			122,111			-			2,066,158
Deferred revenue		2,172,493			-			-			2,172,493
Current portion of long-term debt		2,802,915			-			-			2,802,915
Total current liabilities		22,045,059			122,111			-			22,167,170
Long-term debt, net of current portion		19,349,762			-			-			19,349,762
Subordinated debt, net of current portion		6,078,744			-			-			6,078,744
Deferred income taxes		440,500			2,776,000			(49,081	)		3,167,419
Other long-term liabilities		501,229			-			-			501,229
Total liabilities		48,415,294			2,898,111			(49,081	)		51,264,324
Members' contributions		32,741,354			12,504,500			-			45,245,854
Members' distributions		(10,661,338	)		10,189,508			-			(471,830	)
Members' retained earnings		8,038,125			(8,092,605	)		(157,797	)		(212,277	)
Members' equity		30,118,141			14,601,403			(157,797	)		44,561,747
Total liabilities and members' equity	$	78,533,435		$	17,499,514		$	(206,878	)	$	95,826,071

- 13 -

TECH AEROSPACE GROUP, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)

(2) Restatements (continued)

	Consolidated Statement of Income
	For the Year Ended December 31, 2009
	As Previously			Oct 22, 2012			Dec 24, 2012
	Reported			Adjustments			Adjustments			Restated
Net sales	$	64,472,162		$	(28,529,789	)	$	(1,227,724	)	$	34,714,649
Cost of sales		52,313,612			(24,430,952	)		(881,481	)		27,001,179
Gross profit		12,158,550			(4,098,837	)		(346,243	)		7,713,470
Selling, general and administrative expenses		4,388,221			(1,164,838	)		(139,365	)		3,084,018
Amortization of intangible assets		1,836,894			(107,213	)		-			1,729,681
Operating income		5,933,435			(2,826,786	)		(206,878	)		2,899,771
Other income (expense)
Interest expense		(1,719,450	)		658,398			-			(1,061,052	)
Management fee		(804,667	)		370,000			-			(434,667	)
Miscellaneous expense		(9,696	)		(132,000	)		-			(141,696	)
Acquisition costs		(787,684	)		-			-			(787,684	)
Gain on disposal of property and equipment		(1,423	)		4,375			-			2,952
Total other income (expense)		(3,322,920	)		900,773			-			(2,422,147	)
Income before income taxes		2,610,515			(1,926,013	)		(206,878	)		477,624
Income tax benefit		342,608			(337,968	)		(49,081	)		(44,441	)
Net income	$	2,267,907		$	(1,588,045	)	$	(157,797	)	$	522,065

	Consolidated Statement of Members' Equity
	For the Year Ended December 31, 2009
	As Previously			Oct 22, 2012			Dec 24, 2012
	Reported			Adjustments			Adjustments			Restated
Balance, January 1, 2009	$	12,397,620		$	475,576		$	-		$	12,873,196
Net income		2,267,907			(1,588,045	)		(157,797	)		522,065
Conversion of member receivable to equity		1,026,316			-			-			1,026,316
Contributions by members		9,430,000			-			-			9,430,000
Distributions to members		(9,110,341	)		8,638,511			-			(471,830	)
Equity acquired / issued in business combination		14,106,639			7,075,361			-			21,182,000
Balance, December 31, 2009	$	30,118,141		$	14,601,403		$	(157,797	)	$	44,561,747
Members' contributions	$	32,741,354		$	12,504,500		$	-		$	45,245,854
Members' distributions		(10,661,338	)		10,189,508			-			(471,830	)
Members' retained earnings (deficit)		8,038,125			(8,092,605	)		(157,797	)		(212,277	)
Balance, December 31, 2009	$	30,118,141		$	14,601,403		$	(157,797	)	$	44,561,747

- 14 -

TECH AEROSPACE GROUP, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)

(2) Restatements (continued)

	Consolidated Statement of Cash Flows
	For the Year Ended December 31, 2009
	As Previously			Oct 22, 2012			Dec 24, 2012
	Reported			Adjustments			Adjustments			Restated
Cash flows from operating activities
Net income	$	2,267,907		$	(1,588,045	)	$	(157,797	)	$	522,065
Adjustments to reconcile net income to net cash flows from operating activities
Depreciation		3,132,090			(839,903	)		78,278			2,370,465
Amortization of intangible assets		1,836,894			(107,213	)		-			1,729,681
Amortization of pre-production costs		-			30,775			-			30,775
Amortization of deferred financing costs		179,616			(45,167	)		-			134,449
Deferred income tax benefit		(70,672	)		-			(49,081	)		(119,753	)
Loss on disposal of property and equipment		(1,423	)		4,375			-			2,952
Net change in operating assets and liabilities
Trade receivables		(2,979,842	)		2,124,297			1,346,605			491,060
Inventories		(4,147,371	)		2,743,415			(967,938	)		(2,371,894	)
Prepaid expenses and other assets		170,681			178,066			-			348,747
Accounts payable		47,884			(993,299	)		(250,067	)		(1,195,482	)
Accrued expenses and other liabilities		(388,182	)		(605,737	)		-			(993,919	)
Deferred revenue		1,078,279			(2,561	)		-			1,075,718
Net cash flows from operating activities		1,125,861			899,003			-			2,024,864
Cash flows from investing activities
Purchase of property and equipment		(2,268,914	)		1,046,437			-			(1,222,477	)
Payment of pre-production costs		(358,821	)		(85,323	)		-			(444,144	)
Payment of additional acquisition costs		(797,957	)		797,957			-			-
Acquisition of CT Systems, LLC, net of cash acquired		-			(3,623,399	)		-			(3,623,399	)
Net cash flows from investing activities		(3,425,692	)		(1,864,328	)		-			(5,290,020	)
Cash flows from financing activities
Net activity on line of credit		(1,702,402	)		(12,652,584	)		-			(14,354,986	)
Repayment of long-term debt		(1,511,233	)		(12,019,006	)		-			(13,530,239	)
Proceeds from long-term debt		-			22,000,000			-			22,000,000
Payment of financing costs		(288,616	)		-			-			(288,616	)
Cash contributions from members		9,430,000			-			-			9,430,000
Distributions to members		(4,110,341	)		3,638,511			-			(471,830	)
Change in bank overdraft		187,570			-			-			187,570
Net cash flows from financing activities		2,004,978			966,921			-			2,971,899
Net change in cash		(294,853	)		1,596			-			(293,257	)
Cash, beginning of period		762,557			(1,596	)		-			760,961
Cash, end of period	$	467,704		$	-		$	-		$	467,704

- 15 -

TECH AEROSPACE GROUP, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)

(3) Inventories

Inventories consisted of the following at December 31, 2009:

Raw materials	$	9,208,121
Work-in-process		5,830,461
Finished goods		6,080,818
Reserve for obsolescence		(311,673	)
Total inventories	$	20,807,727

At December 31, 2009, work-in-process inventory included $1,136,157 of deferred production costs and capitalized pre-production costs.

(4) Property and equipment, net

Property and equipment consisted of the following at December 31, 2009:

Cost
Land	$	347,081
Buildings		4,171,156
Machinery and equipment		15,576,247
Furniture and fixtures		426,218
Computer equipment and software		926,299
Tooling		1,111,900
Vehicles and transportation equipment		146,845
Leasehold improvements		209,770
Construction in progress		194,849
Total cost		23,110,365
Accumulated depreciation and amortization		(4,410,599	)
Net property and equipment	$	18,699,766

The aggregate depreciation charged to operations for the year ended December 31, 2009 was $2,370,465.

- 16 -

TECH AEROSPACE GROUP, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)

(5) Intangible assets, net

Intangible assets consisted of the following as of December 31, 2009:

	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Finite lived intangible assets:
Customer relationships	$	23,673,570	$	(748,649	)	$	22,924,921
Non-compete agreements		4,975,488		(2,221,908	)		2,753,580
Engineering drawings		5,423,156		(306,055	)		5,117,101
Backlog		644,388		(274,848	)		369,540
Tradenames		984,000		(82,000	)		902,000
Total finite lived intangible assets	$	35,700,602		(3,633,460	)		32,067,142
Goodwill	$	14,272,588	$	-		$	14,272,588

The aggregate amortization charged to operations for the year ended December 31, 2009 was $1,729,681.  The aggregate amortization expense for the definite lived intangible assets for the next five years is as follows:

Years Ending December 31,
2010	$	4,041,003
2011		3,913,136
2012		3,503,136
2013		3,169,740
2014		2,929,563
Thereafter		14,510,564
Total	$	32,067,142

Intangible assets acquired during the year ended December 31, 2009 were as follows:

	Amount		Weighted Average Useful Life (Years)
Finite lived intangible assets:
Customer relationships		20,801,000		11.0
Engineering drawings		3,763,000		9.0
Tradenames		984,000		2.0
		25,548,000		10.4

The following presents the changes in goodwill for the year ended December 31, 2009:

Goodwill, January 1, 2009	$	7,929,617
Goodwill associated with the acquisition of CT Systems, LLC		6,342,971
Goodwill, December 31, 2010	$	14,272,588

- 17 -

TECH AEROSPACE GROUP, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)

(6) Line of credit

As of December 31, 2009, the Company has an available line of credit with a bank providing for maximum borrowings of $14,000,000 or amount allowable under borrowing base restrictions.  The line expires November 12, 2010.  The Company’s outstanding borrowings under the line of credit totaled $8,926,596 as of December 31, 2009.  The line of credit bears an interest rate equal to the monthly LIBOR rate plus the respective margin with the interest rate floor at 5% (5% at December 31, 2009).  The line of credit is collateralized by all of the assets of the Company and also contains certain covenants.  The Company was not in violation of these covenants as of December 31, 2009.  Management believes that it can renew the term of the line of credit at similar terms.

(7) Long-term debt

Long-term debt consists of the following as of December 31, 2009:

Term note due to a bank secured by substantially all assets of the Companies, payable in monthly installments of principal and interest of $261,905 through November 2012 at which time all remaining principal and interest is due.  In addition, TAG will pay an additional principal payment equal to 50% of the excess cash flow on specific dates.  The loan bears interest at the monthly LIBOR rate plus the applicable margin with the interest rate floor at 5% (5% at December 31, 2009).  The loan contains certain financial covenants.  The Companies were not in violation of these covenants as of December 31, 2009.	$	21,793,095
Subordinated note due to a member of TAG secured by substantially all assets of the Companies.  Unless mandatory prepayment is required, no interest or principal shall be payable under this note prior to December 31, 2010.  Interest shall accrue and be added to the principal balance due.  Commencing on December 31, 2010 and each subsequent June 30 and December 31 prior to and including December 31, 2013, installments of $357,143 plus interest shall be paid and the entire outstanding principal and interest is due on December 31, 2013.  The note bears interest at 15% per annum.  The note requires that the Companies remain in compliance with the senior debt covenants.		5,000,000
Loan payable to seller of AccuTec, LLC; subordinated to the prior payment in full of all senior debt; interest is payable in semi-annual installments at prime (3.25% at December 31, 2009); the Companies may make prepayments of principal if certain sales targets are met in accordance with the provisions of the note; collateralized by substantially all assets of AccuTec, LLC; note matures July 31, 2013.		1,438,326
Total long-term debt		28,231,421
Less current portion		2,802,915
Noncurrent portion	$	25,428,506

- 18 -

TECH AEROSPACE GROUP, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)

(7) Long-term debt (continued)

Maturities of long-term debt are as follows:

Years Ending December 31,
2010	$	2,802,915
2011		3,268,309
2012		18,586,332
2013		3,573,865
Total long-term debt	$	28,231,421

(8) Members’ equity

On December 31, 2007 a member of management purchased 250 units of membership interest in CT in exchange for a $250,000 note receivable. In connection with the November 13, 2009 reorganization transaction with TAG, this note was assigned by CT to TAG and both CT and TAG agreed to waive payment of the principal amount of the original note upon the closing of the merger.  Upon execution of the assignment, both the original note and pledge agreement with CT were canceled and a replacement note and pledge agreement with TAG was initiated.

The replacement note for $250,000 is noninterest bearing and is due on the earlier of (i) December 31, 2012; (ii) termination of employment; or (iii) the effective date of any sale or disposition of all or any significant portion of TAG’s assets.  As security for the payment and performance under the note, the member pledged and granted TAG a security interest in the 67 units of TAG held by the member.  The note receivable was recorded as a reduction to members’ equity as of December 31, 2009.  During 2010, employment was terminated, and at that time, the member units were returned to TAG and the note was forgiven.

As discussed in note 1, a merger took place effective November 13, 2009 between the Companies.  As a result of the merger, ATE and DACA entered into Subordinated Debt Conversion Agreements whereby they each agreed to convert $500,000 and $526,316, respectively, from subordinated debt to membership interests totaling $1,026,316 and were released by the debt holders of any future obligations under the agreements.

In conjunction with the merger, certain other agreements and transactions were entered into among the parties and their related members as described, herein.  The transaction was financed primarily through a $9,375,000 capital contribution from one of the TAG’s members.  Proceeds were used to acquire equity interests of CT ($3,625,000) and to pay closing transaction fees (approximately $650,000).  TAG also entered into a $5 million subordinated note agreement with a member of CT.

- 19 -

TECH AEROSPACE GROUP, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)

(8) Members’ equity (continued)

Prior to the merger, the following transactions affected the membership interests of the Subsidiaries.  Member distributions totaling $430,341 were paid.  A capital contribution of $55,000 was paid to PML by its majority member who in turn used the proceeds to buy back the shares of a minority member and simultaneously forgive a $260,600 note receivable from the minority member as part of a separation agreement and cancelation to their rights for ownership interest.  Further, a note receivable totaling $157,980 from a minority member of DACA was forgiven as part of the negotiated ownership agreement with TAG.

As of December 31, 2009, the consolidated members’ equity of the Company totaled $44,561,747 with 1,000,000 units outstanding.

(9) Operating leases

The Company operates certain of their production facilities in leased facilities and maintain a portion of their equipment under non-cancelable operating lease agreements having initial terms of more than one year and expiring at various dates through 2013.

The future minimum rental payments required under operating leases that have initial or remaining noncancellable lease terms in excess of one year are as follows:

Years Ending December 31,
2010	$	280,325
2011		97,800
2012		97,800
2013		44,000
Total	$	519,925

Rent expense under these operating leases was $164,381 for the year ended December 31, 2009.

(10) Retirement and profit sharing plans

The Company participates in 401(k) or Simple IRA plans qualified under section 401(k) of the Internal Revenue Code.  Essentially all full-time employees are eligible to participate in the plans.  Participants may elect to have a portion of their salary contributed to the respective plans within certain limits.  Under the plans, the Company may contribute a discretionary matching contribution equal to a uniform percentage of the participant’s compensation contributed to the applicable plan.  The exact percentage, if any, will be determined each year and shall not exceed 3% of a participant’s compensation for the year.  The Company made contributions of $147,707 for the year ended December 31, 2009.

- 20 -

TECH AEROSPACE GROUP, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)

(11) Concentrations

For the year ended December 31, 2009, approximately 71% of the Company’s sales were to three customers.  These same three customers’ trade accounts receivable were approximately 70% of the total outstanding as of December 31, 2009.

(12)  Related party transactions

The Company incurred management fees to a related party under common ownership with TAG in the amount of $434,667 for the year ended December 31, 2009.

CT Systems, LLC leased warehouse space to a related party under common ownership for $17,000 for the year ended December 31, 2009.

Of the approximately $650,000 of closing costs paid by the Company as a result of the merger, approximately $200,000 was paid to various related parties, including members of the Company.

(13)  Income taxes

PTE provides for deferred income taxes to reflect the impact of temporary differences between the recorded amounts of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws and regulations.

Income tax expense (benefit) for the year ended December 31, 2009 was computed as follows:

Current income tax expense
Federal and state income taxes	$	75,312
Deferred income tax benefit		(119,753	)
Total income tax expense	$	(44,441	)

The significant temporary differences and the related deferred tax assets and liabilities as of December 31, 2009 are as follows:

Deferred tax assets
Inventory	$	12,260
Deferred tax liabilities
Intangible assets		(2,766,279	)
Property and equipment		(401,140	)
Net deferred income taxes	$	(3,155,159	)
Current assets	$	12,260
Net noncurrent liabilities		(3,167,419	)
Net deferred taxes	$	(3,155,159	)

- 21 -

TECH AEROSPACE GROUP, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)

(14) Risk and uncertainties

As a contract manufacturer of precision components, the Company currently fabricates precision components and assemblies to customer specifications, primarily for the aerospace industry.  The Company is subject to various risks and uncertainties that could cause actual results to differ from the estimates made in the Company’s consolidated financial statements.  The following factors could impact the Company’s accounting estimates as well as the Company’s future operating results, liquidity and financial condition:

· The profitability of the commercial airlines, including world safety considerations;

· The profitability of customers given the high concentration of sales to a small number of customers;

· Consolidation of aerospace suppliers may make it difficult to obtain new customers;

· The ability to maintain financing;

· Rapid developments in technology and a competitive business environment;

· Labor increases and ability to maintain skilled labor; and

· Labor relations, including strikes.

(15) Subsequent events

The Company has evaluated subsequent events through December 24, 2012, the date which the consolidated financial statements are available to be issued.  Except as reported in previously issued consolidated financial statements, no issues were identified for disclosure in the consolidated financial statements or notes to the consolidated financial statements based on this review.

- 22 -

SUPPLEMENTARY INFORMATION

INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTARY INFORMATION

To the Members

VALENT AEROSTRUCTURES, LLC

Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements taken as a whole. The attached consolidating information is presented for purposes of additional analysis of the consolidated financial statements rather than to present the financial position and results of operations of the individual companies.  Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements.  The consolidating information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with U.S. generally accepted auditing standards.  In our opinion, the information is fairly stated in all material respects in relation to the consolidated financial statements taken as a whole.

As described in note 2 to the consolidated financial statements, the Company has restated its December 31, 2009 consolidated financial statements.

/s/ Mayer Hoffman McCann P.C.

Mayer Hoffman McCann P.C.

Leawood, Kansas

December 24, 2012

- 23 -

TECH AEROSPACE GROUP, LLC AND SUBSIDIARIES

CONSOLIDATING BALANCE SHEETS (RESTATED)

December 31, 2009

	CT Systems
							Cottonwood
	PTE			CT			Falls *			Fredonia *			DACA			PML			AT			TAG			Eliminations			Consolidated
A S S E T S
CURRENT ASSETS
Cash	$	1,000		$	147		$	454		$	-		$	127,431		$	(35,810	)	$	(21,919	)	$	396,401		$	-		$	467,704
Trade receivables, net		705,650			910,610			2,501,615			826,726			2,082,435			1,631,383			226,877			-			(397,196	)		8,488,100
Inventories, net		2,500,489			1,977,084			3,044,029			2,396,102			5,463,556			4,881,066			459,084			258,000			(171,683	)		20,807,727
Prepaid expenses and other current assests		29,922			48,237			23,599			23,926			75,372			61,418			20,077			9,098			-			291,649
Income tax receivable		12,260			-			-			-			-			-			-			-			-			12,260
TOTAL CURRENT ASSETS		3,249,321			2,936,078			5,569,697			3,246,754			7,748,794			6,538,057			684,119			663,499			(568,879	)		30,067,440
PROPERTY AND EQUIPMENT, net		1,352,161			176,884			2,645,595			1,939,125			4,263,361			6,615,083			1,707,558			-			-			18,699,766
OTHER ASSETS
Other assets		71,602			-			-			-			298,479			194,887			-			-			-			564,968
Intercompany receivables		1,115,600			1,333,461			(2,032,939	)		(416,122	)		38,504			-			-			30,991,054			(31,029,558	)		-
Investment in subsidiary		-			10,228,322			-			-			-			-			-			48,868,922			(59,097,244	)		-
Deferred financing costs		-			-			-			-			-			-			-			154,167			-			154,167
Intangible assets, net		6,817,298			3,720,690			10,244,661			4,298,498			4,292,696			1,116,357			1,576,942			-			-			32,067,142
Goodwill		3,792,697			539,783			1,323,314			687,176			-			3,121,662			4,807,955			-			-			14,272,588
TOTAL OTHER ASSETS		11,797,197			15,822,256			9,535,036			4,569,552			4,629,679			4,432,906			6,384,897			80,014,143			(90,126,802	)		47,058,865
TOTAL ASSETS	$	16,398,679		$	18,935,218		$	17,750,328		$	9,755,431		$	16,641,834		$	17,586,046		$	8,776,574		$	80,677,642		$	(90,695,681	)	$	95,826,071
L I A B I L I T I E S
CURRENT LIABILITIES
Line of credit	$	224,324		$	-		$	-		$	-		$	751,810		$	2,628,612		$	3,152,004		$	8,926,596		$	(6,756,750	)	$	8,926,596
Accounts payable		177,610			708,816			2,247,784			438,303			756,628			2,037,223			63,025			166,814			(397,195	)		6,199,008
Accrued expenses and other liabilities		400,757			314,779			93,660			317,372			302,387			182,804			225,009			229,390			-			2,066,158
Deferred revenue		-			6,164			-			-			2,166,329			-			-			-			-			2,172,493
Current portion of long-term debt		-			-			-			-			-			-			359,582			2,443,333			-			2,802,915
TOTAL CURRENT LIABILITIES		802,691			1,029,759			2,341,444			755,675			3,977,154			4,848,639			3,799,620			11,766,133			(7,153,945	)		22,167,170
TERM DEBT AND CAPITAL LEASE
OBLIGATIONS, net of current portion		2,200,247			6,944,831			-			5,751,149			5,406,255			3,931,822			38,504			19,349,762			(24,272,808	)		19,349,762
SUBORDINATED DEBT, net of current portion		-			-			-			-			-			-			1,078,744			5,000,000			-			6,078,744
DEFERRED INCOME TAXES		3,167,419			-			-			-			-			-			-			-			-			3,167,419
OTHER LONG-TERM LIABILITIES		-			-			-			-			-			333,729			167,500			-			-			501,229
TOTAL LIABILITIES		6,170,357			7,974,590			2,341,444			6,506,824			9,383,409			9,114,190			5,084,368			36,115,895			(31,426,753	)		51,264,324
E Q U I T Y
COMMON STOCK		65,695			-			-			-			-			-			-			-			(65,695	)		-
ADDITIONAL PAID IN CAPITAL		10,432,741			-			-			-			-			-			-			-			(10,432,741	)		-
MEMBERS' CONTRIBUTIONS		-			11,114,582			15,604,395			3,088,016			4,578,862			10,610,000			4,000,000			45,245,854			(48,995,855	)		45,245,854
MEMBERS' DISTRIBUTIONS		-			-			-			-			(416,830	)		(55,000	)		-			(471,830	)		471,830			(471,830	)
RETAINED EARNINGS		(270,114	)		(153,954	)		(195,511	)		160,591			3,096,393			(2,083,144	)		(307,794	)		(212,277	)		(246,467	)		(212,277	)
TOTAL EQUITY		10,228,322			10,960,628			15,408,884			3,248,607			7,258,425			8,471,856			3,692,206			44,561,747			(59,268,928	)		44,561,747
TOTAL LIABILITIES AND EQUITY	$	16,398,679		$	18,935,218		$	17,750,328		$	9,755,431		$	16,641,834		$	17,586,046		$	8,776,574		$	80,677,642		$	(90,695,681	)	$	95,826,071
				* Represent operating divisions of CT Systems, LLC

See Notes to Consolidated Financial Statements

- 24 -

CONSOLIDATING STATEMENT OF INCOME (RESTATED)

Year Ended December 31, 2009

	CT Systems
							Cottonwood
	PTE			CT			Falls *			Fredonia *			DACA			PML			AT			TAG			Eliminations			Consolidated
NET SALES	$	799,284		$	1,675,493		$	1,699,129		$	848,277		$	16,462,627		$	11,632,728		$	2,315,073		$	-		$	(717,962	)	$	34,714,649
COST OF SALES		923,191			1,004,958			1,648,397			486,379			11,519,163			10,354,922			1,868,448			(258,000	)		(546,279	)		27,001,179
GROSS PROFIT (LOSS)		(123,907	)		670,535			50,732			361,898			4,943,464			1,277,806			446,625			258,000			(171,683	)		7,713,470
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		4,225			286,695			32,902			74,445			912,922			1,500,590			216,595			55,644			-			3,084,018
AMORTIZATION OF INTANGIBLE ASSETS		122,702			71,309			173,341			79,502			764,756			208,766			309,305			-			-			1,729,681
OPERATING INCOME (LOSS)		(250,834	)		312,531			(155,511	)		207,951			3,265,786			(431,550	)		(79,275	)		202,356			(171,683	)		2,899,771
OTHER INCOME (EXPENSE)
Equity earnings of subsidiaries		-			(270,114	)		-			-			-			-			-			1,079,240			(809,126	)		-
Interest expense		(19,721	)		(90,753	)		-			(47,360	)		(222,467	)		(382,704	)		(169,297	)		(128,750	)		-			(1,061,052	)
Management fee		-			(68,000	)		200,000			-			(400,000	)		-			-			(166,667	)		-			(434,667	)
Corporate expense allocation		(40,000	)		45,000			(240,000	)		-			(82,400	)		(16,480	)		(4,120	)		206,000			132,000			-
Miscellaneous income (expense), net		-			-			-			-			2,059			(4,097	)		(7,658	)		-			(132,000	)		(141,696	)
Acquisition costs		(4,000	)		(85,570	)		-			-			(10,000	)		(10,000	)		(8,000	)		(670,114	)		-			(787,684	)
Gain on disposal of property and equipment		-			2,952			-			-			-			-			-			-			-			2,952
TOTAL OTHER INCOME (EXPENSE)		(63,721	)		(466,485	)		(40,000	)		(47,360	)		(712,808	)		(413,281	)		(189,075	)		319,709			(809,126	)		(2,422,147	)
INCOME BEFORE INCOME TAXES		(314,555	)		(153,954	)		(195,511	)		160,591			2,552,978			(844,831	)		(268,350	)		522,065			(980,809	)		477,624
INCOME TAX PROVISION		(44,441	)		-			-			-			-			-			-			-			-			(44,441	)
NET INCOME (LOSS)	$	(270,114	)	$	(153,954	)	$	(195,511	)	$	160,591			2,552,978			(844,831	)		(268,350	)		522,065			(980,809	)		522,065
					* Represent operating divisions of CT Systems, LLC

See Notes to Consolidated Financial Statements

- 25 -

VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

(RESTATED)

Years Ended December 31, 2011 and 2010

INDEPENDENT AUDITORS' REPORT

To the Members

VALENT AEROSTRUCTURES, LLC

We have audited the accompanying consolidated balance sheets of  Valent Aerostructures, LLC and Subsidiaries (the Company) as of December 31, 2011 and 2010 and the related consolidated statements of income, members’ equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with U.S. generally accepted auditing standards.  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Valent Aerostructures, LLC and Subsidiaries as of December 31, 2011 and 2010, and the results of their operations and their cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.

As described in note 19 to the consolidated financial statements, the Company has restated its December 31, 2011 and 2010 consolidated financial statements.

/s/ Mayer Hoffman McCann P.C.

Mayer Hoffman McCann P.C.

Leawood, Kansas

December 24, 2012

- 1 -

VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31, 2011 and 2010

	2011				2010
	(Restated)				(Restated)
A S S E T S
CURRENT ASSETS
Cash		$	2,218,076			$	211,325
Trade receivables, net			12,363,631				9,667,183
Inventories, net			22,962,225				21,203,056
Prepaid expenses and other current assets			750,163				379,495
Income tax receivable			155,760				142,399
TOTAL CURRENT ASSETS			38,449,855				31,603,458
PROPERTY AND EQUIPMENT, net			31,241,743				19,485,159
OTHER ASSETS
Other assets			4,015,094				8,383,535
Deferred financing costs			346,252				182,204
Intangible assets, net			24,113,001				28,026,138
Goodwill			14,427,695				14,427,695
TOTAL OTHER ASSETS			42,902,042				51,019,572
TOTAL ASSETS		$	112,593,640			$	102,108,189
L I A B I L I T I E S
CURRENT LIABILITIES
Accounts payable		$	12,240,807			$	6,221,357
Accrued expenses and other liabilities			2,968,806				2,164,204
Deferred revenue			824,689				1,160,786
Deferred income taxes			-				10,983
Line of credit			13,203,825				-
Current portion of long-term debt and capital lease obligations			22,436,046				4,755,220
TOTAL CURRENT LIABILITIES			51,674,173				14,312,550
LINE OF CREDIT			-				9,536,439
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, net of current portion			11,654,745				25,784,195
SUBORDINATED DEBT, net of current portion			719,163				5,611,570
DEFERRED INCOME TAXES			2,438,952				2,802,814
TOTAL LIABILITIES			66,487,033				58,047,568
M E M B E R S' E Q U I T Y
MEMBERS' CONTRIBUTIONS			45,245,854				45,245,854
MEMBERS' DISTRIBUTIONS			(525,230	)			(471,830	)
MEMBERS' RETAINED EARNINGS (DEFICIT)			1,385,983				(713,403	)
MEMBERS' EQUITY			46,106,607				44,060,621
TOTAL LIABILITIES AND MEMBERS' EQUITY		$	112,593,640			$	102,108,189

See Notes to Consolidated Financial Statements

- 2 -

VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

Years Ended December 31, 2011 and 2010

	2011			2010
	(Restated)			(Restated)
NET SALES	$	86,510,872		$	76,872,931
COST OF SALES		71,458,880			64,930,005
GROSS PROFIT		15,051,992			11,942,926
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		6,085,520			5,084,093
AMORTIZATION OF INTANGIBLE ASSETS		3,913,137			4,041,001
OPERATING INCOME		5,053,335			2,817,832
OTHER INCOME (EXPENSE)
Interest expense		(2,352,256	)		(2,599,685	)
Management fee		(1,000,000	)		(1,000,000	)
Miscellaneous income (expense), net		343,635			1,201
Acquisition costs		-			(2,027	)
Relocation costs		(451,599	)		-
Loss (gain) on disposal of property and equipment, net		(78,085	)		1,627
TOTAL OTHER INCOME (EXPENSE)		(3,538,305	)		(3,598,884	)
INCOME (LOSS) BEFORE INCOME TAXES		1,515,030			(781,052	)
INCOME TAX BENEFIT		(584,356	)		(279,926	)
NET INCOME (LOSS)	$	2,099,386		$	(501,126	)

See Notes to Consolidated Financial Statements

- 3 -

VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF MEMBERS’ EQUITY

Years Ended December 31, 2011 and 2010

	Members'		Members'			Members' Retained
	Contributions		Distributions			Earnings (Deficit)			Total
Balance, January 1, 2010 (restated)	$	45,245,854	$	(471,830	)	$	(212,277	)	$	44,561,747
Net loss (restated)		-		-			(501,126	)		(501,126	)
Balance, December 31, 2010 (restated)		45,245,854		(471,830	)		(713,403	)		44,060,621
Member distributions		-		(53,400	)		-			(53,400	)
Net Income (restated)		-		-			2,099,386			2,099,386
Balance, December 31, 2011 (restated)	$	45,245,854	$	(525,230	)	$	1,385,983		$	46,106,607

See Notes to Consolidated Financial Statements

- 4 -

VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31, 2011 and 2010

	2011			2010
	(Restated)			(Restated)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	2,099,386		$	(501,126	)
Adjustments to reconcile net income (loss) to net cash flows from operating activities
Depreciation of property and equipment		3,646,836			3,294,855
Amortization of pre-production costs		243,333			89,535
Amortization of intangible assets		3,913,137			4,041,004
Amortization of deferred financing costs		113,311			162,195
Deferred income tax benefit		(374,845	)		(341,362	)
Loss (gain) on disposal of property and equipment		78,085			(1,627	)
Net change in operating assets and liabilities
Trade receivables		(2,696,448	)		(1,263,865	)
Inventories		(527,653	)		(478,603	)
Prepaid expenses and other current assets		(354,120	)		(87,846	)
Accounts payable		3,299,269			(424,651	)
Accrued expenses and other liabilities		107,851			679,184
Deferred revenue		(336,097	)		(1,011,706	)
NET CASH FLOWS FROM OPERATING ACTIVITIES		9,212,045			4,155,987
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment		(7,038,210	)		(1,379,764	)
Proceeds from the sale of property and equipment		378,762			508,571
Payment of pre-production costs		(397,544	)		(328,327	)
Payment of deferred production costs		(1,230,541	)		-
Reimbursement of pre-production costs		75,084			-
Payment of contingent consideration		-			(122,111	)
NET CASH FLOWS USED BY INVESTING ACTIVITIES		(8,212,449	)		(1,321,631	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings on line of credit		2,554,095			609,843
Repayment of financial institution debt		(5,996,998	)		(3,150,263	)
Repayment of bonds payable		(164,034	)		(13,381	)
Repayment of subordinated note #1		(714,286	)		(536,934	)
Repayment of subordinated note #2		(179,790	)		-
Proceeds from long-term debt		3,354,166			-
Payment of financing costs		(277,359	)		-
Distributions to members		(53,400	)		-
Reimbursements for the purchase of equipment under a long-term capital lease		2,484,761			-
NET CASH FLOWS FROM (USED BY) FINANCING ACTIVITIES		1,007,155			(3,090,735	)
NET CHANGE IN CASH		2,006,751			(256,379	)
CASH, BEGINNING OF PERIOD		211,325			467,704
CASH, END OF PERIOD	$	2,218,076		$	211,325

See Notes to Consolidated Financial Statements

- 5 -

VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31, 2011 and 2010

The following is a summary of supplemental cash flow information:

	2011		2010
Cash paid for:
Interest, net of amounts capitalized	$	2,345,200	$	1,722,000
Income taxes	$	-	$	386,361
Noncash investing and financing activities:
Financing of property and equipment with bank debt	$	-	$	1,000,000
Conversion of interest on Member Note	$	-	$	784,046
Financing of property and equipment with accounts payable and accrued liabilities	$	4,227,428	$	141,340
Refinancing of financial institution debt	$	25,682,538	$	-
Financing of property and equipment with bond proceeds	$	4,616,294	$	2,066,089
Deferred loan fees paid from bond proceeds	$	-	$	190,232

See Notes to Consolidated Financial Statements

- 6 -

VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Summary of significant accounting policies

Principles of consolidation and nature of operations - Valent Aerostructures, LLC (Valent) is a parent holding company of the following wholly owned subsidiaries whose accounts are included in the accompanying consolidated financial statements:

·  Valent Aerostructures - Washington, LLC (Washington), a subsidiary of Valent: Washington (Missouri) is a manufacturer of production parts, tooling, and commercial and military aircraft components. The parts and tooling are precision machined and/or manufactured to the customer’s drawings and the work is performed under fixed-priced contracts.

·  Valent Aerostructures - Wichita, LLC (Wichita), a subsidiary of Valent: Wichita (Kansas) is a manufacturer of production parts, tooling, and commercial and military aircraft components. The parts and tooling are precision machined and/or manufactured to the customer’s drawings and the work is performed under fixed-priced contracts.

·  Valent Aerostructures - Tulsa, LLC (Tulsa), a subsidiary of Valent: Tulsa (Oklahoma) is a manufacturer of production parts, tooling, and commercial and military aircraft components. The parts and tooling are precision machined and/or manufactured to the customer’s drawings and the work is performed under fixed-priced contracts.

·  Valent Aerostructures - St. Louis, Inc. (St. Louis), a subsidiary of Valent: St. Louis (Missouri) is a manufacturer of production parts, tooling, and commercial and military aircraft components. The parts and tooling are precision machined and/or manufactured to the customer’s drawings and the work is performed under fixed-priced contracts.

·  Valent Aerostructures - Lenexa, LLC (Lenexa), a subsidiary of Valent: Lenexa (Kansas) is a contract manufacturer of electronic and electrical wire harnesses, cable assemblies and mechanical sub-assemblies for air and rail traffic control, medical equipment, telecommunications, and heavy equipment industries.

·  Valent Aerostructures - Cottonwood Falls (Cottonwood Falls), a division of Lenexa: Cottonwood Falls (Kansas) specializes in the assembly of major and minor component parts for the commercial aerospace market.

·  Valent Aerostructures - Fredonia (Fredonia), a division of Lenexa: Fredonia (Kansas) is a manufacturer of production parts, tooling, and commercial and military aircraft components. The parts and tooling are precision machined and/or manufactured to the customer’s drawings and the work is performed under fixed-priced contracts.

These entities are collectively referred to as the Company.  All significant intercompany balances and transactions have been eliminated.

- 7 -

VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Summary of significant accounting policies (continued)

Use of estimates - The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods.  Significant estimates used in preparing the consolidated financial statements include estimated costs to complete fixed-price contracts accounted for under the unit of delivery method, capitalized pre-production costs, and reserve for inventory obsolescence.  Actual results could differ from these estimates.

Revenue recognition - Certain of the Company’s revenues relating to commercial aircraft components are recognized under long-term, fixed price contracts, requiring delivery of units over several years.  For these contracts, the Company recognizes revenue under the contract method of accounting and records sales in accordance with the units of delivery method.  The Company follows the requirements of ASC Topic, Accounting for Construction-Type and Production-Type Contracts, using the cumulative catch-up method in accounting for revisions in estimates. Under the cumulative catch-up method, the impact of revisions in estimates is recognized immediately when changes in estimated contract profitability become known.

A margin percentage is estimated based on the difference between total expected revenues and total estimated costs of a contract.  Total revenues at any given time include actual historical revenues up to that time plus future estimated revenues. Total costs at any given time include actual historical costs up to that time plus future estimated costs.  Estimated revenues include negotiated or expected values for units delivered, estimates of probable recoveries asserted against the customer for changes in specifications, and price adjustments for contract changes. Costs include the estimated cost of certain pre-production effort (including non-recurring engineering and planning subsequent to completion of final design) plus the estimated cost of manufacturing the specified number of production units.  Estimates take into account assumptions relative to future labor performance and rates, and projections relative to material and overhead costs including expected “learning curve” cost reductions over the term of the contract.  The specified number of production units used to establish the profit margin is predicated upon contractual terms and customer production forecasts.  The assumed period covered is generally equal to the period specified in the contract or the future period for which the Company can project reasonably dependable cost estimates.  Estimated revenues and costs also take into account any rebates or discounts offered and the expected impact of specific contingencies that the Company believes are probable, if any.

Estimates of revenues and costs for the contracts span a period of multiple years and are based on a substantial number of underlying assumptions.  The Company believes the underlying assumptions are sufficiently reliable to provide a reasonable estimate of the margin percentage. However, due to the significant length of time over which revenue streams will be generated, the variability of the revenue and cost streams can be significant if the assumptions change.

- 8 -

VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 (1) Summary of significant accounting policies (continued)

Revenue recognition (continued) – The Company has entered into Vendor Owned Inventory (VOI) arrangements that cover certain products sold to a significant customer. Pursuant to those arrangements, the Company will hold title to the products subsequent to delivery and until they are used by the customer.  The Company has determined that because substantially all risks and rewards of product ownership have not passed to the customer upon delivery, including title, the Company does not recognize revenue relating to these products until utilized by the customer.  As discussed in note 19, the Company previously accounted for revenue on these products upon delivery to the customer and has restated the consolidated financial statements to reflect the change in accounting.

For revenues not recognized under the contract method of accounting or those related to the VOI arrangements, the Company recognizes revenues at the time both title and risk of ownership are transferred to the customer, which is generally at the time of shipment.  Revenues are recorded net of returns and discounts.  Shipping and handling costs are included in cost of sales.  Fees received in advance of order completion and shipment are included in deferred revenue until earned.

Income taxes - With the exception of St. Louis, the Company is organized as a limited liability company whereby the members of the Company are taxed under the partnership provisions of the Internal Revenue Code.  Under these provisions, the limited liability company does not pay income taxes on their taxable income, nor are they allowed a net operating loss carryforward or carryback as a deduction.  Instead, the members are individually liable for income tax on the limited liability company’s taxable income or loss.

St. Louis is taxed as a C-Corporation under the Internal Revenue Code.  St. Louis’s provision for income taxes is computed using the asset and liability method, as prescribed by ASC Topic, Income Taxes, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities.

No significant uncertain tax positions have been identified; therefore the Company has not recognized any uncertain tax positions. The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions.  The Company is no longer subject to U.S. federal, or state and local income tax examinations by tax authorities for years before 2007.

Cash - Cash consists of bank demand deposits.  At times during the year, the Company’s cash balances in certain accounts may have exceeded the Federal Deposit Insurance Corporation (FDIC) limits.  Non-interest bearing transaction accounts are temporarily not subject to the FDIC limits and are fully insured as of January 1, 2011 and through December 31, 2011. The Company monitors the financial strength of their banks and feels the risk of loss is remote.

Trade receivables - The Company grants credit to its customers and generally does not require collateral to secure payment of accounts receivable.  Accounts receivable are carried at cost, less an allowance for doubtful accounts, and do not accrue any finance or interest charges.  Management routinely reviews accounts receivable and an allowance for doubtful accounts is provided when amounts are determined to be uncollectible.  An account is written off after all collection efforts have been exhausted.  The allowance for doubtful accounts was approximately $42,700 and $38,700 at December 31, 2011 and 2010, respectively.

- 9 -

VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Summary of significant accounting policies (continued)

Inventories - Raw materials, work-in-process, and finished goods that do not relate to long-term, fixed price contracts, including inventory subject to the VOI arrangements, are stated at the lower of cost, determined on the first-in, first-out (FIFO) method, or market.  Market is based upon realizable value less normal gross profit.

Inventoried costs attributed to units delivered under long-term contracts are based on the estimated average cost of all units expected to be produced and are determined under the learning curve concept which anticipates a predictable decrease in unit costs as tasks and production techniques become more efficient through repetition.  This usually results in an increase in inventory (referred to as “excess-over-average” or “deferred production costs”) during the early years of a contract.  These costs are deferred only to the extent the amount of actual or expected excess-over-average is reasonably expected to be fully offset by lower-than-average costs in future periods of a contract.  If in-process inventory plus estimated costs to complete a specific contract exceed the anticipated remaining estimated revenue of such contract, the loss is recognized immediately through a charge to cost of sales in the period the loss becomes known, thus reducing inventory to estimated realizable value.

Property and equipment - Property and equipment are recorded at cost.  Depreciation is computed using the straight-line method over the following estimated useful lives:

Assets	Estimated Useful Lives
Buildings	20 – 40 years
Furniture and fixtures	5 – 7 years
Machinery and equipment	3 – 7 years
Computer equipment and software	3 – 7 years
Tooling	3 – 7 years
Vehicles and transportation equipment	5 – 7 years
Leasehold improvements	7 – 39 years

Leasehold improvements are depreciated over the related lease term or estimated useful lives of the improvements, whichever is shorter.  Major replacements and betterments are capitalized while maintenance and repairs are charged to expense.

Deferred financing costs - Deferred financing costs, which represent fees and other costs incurred in connection with obtaining debt, are amortized using the effective-interest method over the term of the corresponding note and are included in interest expense.  Amortization of deferred financing costs for the years ended December 31, 2011 and 2010 was $113,311 and $162,195, respectively.

- 10 -

VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Summary of significant accounting policies (continued)

Goodwill - Goodwill represents the excess cost over fair value of net assets acquired through acquisitions.  In accordance with the provisions of ASC Topic, Intangibles - Goodwill and Other, goodwill is assessed annually for impairment. If considered impaired, goodwill is to be written down to implied fair value and a corresponding impairment loss recognized.  The Company performs step one of the goodwill impairment analysis by comparing the estimated fair value of the Company’s single reportable unit to its carrying amount.  Based on the Company’s valuations performed by an independent third party as of December 31, 2011 and 2010, respectively, management has determined the fair value of the Company’s single reportable unit exceeded its carrying amount.  Therefore, management determined that no impairment loss attributable to goodwill of the single reportable unit had occurred during the years ended December 31, 2011 and 2010.

Intangible assets - Intangible assets consist of customer relationships, non-compete agreements, engineering drawings, and backlog from previous acquisitions.  Customer relationships and engineering drawings are amortized on a straight-line basis over their estimated economic benefit period of 9 to 11 years.  Non-compete agreements, trademarks and backlog are being amortized on a straight-line basis over their estimated economic benefit period, generally from two to five years.

Impairment of long-lived assets - The Company assesses the impairment of long-lived assets, which include property and equipment and intangible assets, whenever events or changes in circumstances indicate that such assets might be impaired and the carrying value may not be recoverable.  No impairment loss attributable to long-lived assets was recognized for the years ended December 31, 2011 and 2010.

(2) Inventories, net

Inventories consisted of the following:

	2011			2010
Raw materials	$	8,046,260		$	7,274,506
Work-in-process		9,086,450			6,773,118
Finished goods		6,322,984			7,579,839
Reserve for obsolescence		(493,469	)		(424,407	)
Total inventories	$	22,962,225		$	21,203,056

At December 31, 2011 and 2010, work-in-process inventory included $2,771,968 and  $1,853,012, respectively, of deferred production costs and capitalized pre-production costs.

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VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(3) Property and equipment, net

Property and equipment consisted of the following:

	2011			2010
Land	$	887,081		$	887,081
Buildings		11,228,136			4,237,872
Machinery and equipment		23,563,593			16,455,950
Furniture and fixtures		710,922			468,098
Computer equipment and software		1,652,248			1,323,528
Tooling		1,267,733			1,089,086
Vehicles and transportation equipment		245,605			250,718
Leasehold improvements		621,495			289,123
Construction in progress		1,398,535			1,821,879
Total cost		41,575,348			26,823,335
Accumulated depreciation and amortization		(10,333,605	)		(7,338,176	)
Net property and equipment	$	31,241,743		$	19,485,159

The aggregate depreciation and amortization charged to operations for the years ended December 31, 2011 and 2010 was $3,646,836 and $3,294,855, respectively.

(4) Pre-production costs

The Company accounts for pre-production costs in accordance with ASC Topic, Other Assets and Deferred Costs. These costs are amortized over the life of the related contract in proportion to the units produced and are recorded in other assets in the accompanying consolidated balance sheet.

Pre-production costs consisted of the following:

	2011			2010
Pre-production costs, beginning of year	$	803,760		$	564,968
Costs capitalized		397,544			328,327
Costs reimbursed		(75,084	)		-
Amortization		(208,882	)		(89,535	)
Pre-production costs, end of year	$	917,338		$	803,760

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VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(5) Other assets

Other assets consisted of the following:

	2011		2010
Pre-production costs	$	917,338	$	803,760
Refundable tax credit		259,125		-
Unspent bond proceeds		1,154,781		5,771,075
Missouri Development Finance Board bonds		1,683,850		1,808,700
Total Other  Assets	$	4,015,094	$	8,383,535

(6) Intangible assets, net

Intangible assets consisted of the following:

	2011
	Gross Carrying Amount		Accumulated Amourtization
Finite lived intangible assets:
Customer relationships	$	23,673,570	$	(5,077,805	)
Non-compete agreements		3,946,985		(2,508,130	)
Engineering drawings		5,423,156		(1,458,498	)
Backlog		644,389		(530,666	)
Tradenames		984,000		(984,000	)
Total finite lived intangible assets	$	34,672,100		(10,559,099	)
Goodwill	$	14,427,695	$	-

	2010
	Gross Carrying Amount		Accumulated Amourtization
Finite lived intangible assets:
Customer relationships	$	23,673,570	$	(2,913,226	)
Non-compete agreements		3,946,985		(1,850,768	)
Engineering drawings		5,423,156		(882,276	)
Backlog		644,389		(425,692	)
Tradenames		984,000		(574,000	)
Total finite lived intangible assets	$	34,672,100		(6,645,962	)
Goodwill	$	14,427,695	$	-

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VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(6) Intangible assets, net (continued)

The aggregate amortization charged to operations for the years ended December 31, 2011 and 2010 was $3,913,137 and $4,041,004, respectively.  During 2010, the Company paid contingent consideration related to a prior acquisition by CT Systems, LLC (see note 19) of $122,111, which is reflected as an adjustment to goodwill in connection with the restatement for the business combination.

The aggregate amortization expense for the definite lived intangible assets for the next five years and thereafter is as follows:

Years Ending December 31,
2012	$	3,503,136
2013		3,169,742
2014		2,929,563
2015		2,913,329
2016		2,740,798
Thereafter		8,856,433
Total	$	24,113,001

Except as noted above, no changes to goodwill were incurred during the years ended December 31, 2011 and 2010.

(7) Line of credit

As of December 31, 2010, the Company had an available line of credit with a financial institution providing for maximum borrowings equal to the greater of $14,000,000 or the amount allowable under borrowing base restrictions.  The line of credit bore interest at a variable rate (5% at December 31, 2010).  The line expired on February 12, 2011 and the Company renewed its line of credit providing for maximum borrowings equal to the greater of $19,000,000 or the amount allowable under borrowing base restrictions.

In December 2011, the Company refinanced the line of credit with a syndicated group of creditors which provides for maximum borrowings equal to the greater of $25,000,000 or the amount allowable under borrowing base restrictions.  The maximum amount allowable under the borrowing base restrictions at December 31, 2011 was approximately $19,278,000. The Company’s outstanding borrowings under the line of credit totaled $13,203,825.  The line of credit bears interest at either a base rate or LIBOR rate, both of which may vary depending on the Company’s leverage ratio. The applicable rate is defined as the Adjusted Daily LIBOR Rate as defined plus the applicable margin which was 2.50% at December 31, 2011.  The interest rate was 2.78% at December 31, 2011. The line expires on December 15, 2014. The line of credit is collateralized by all assets of the Company.

The line of credit contains certain operating and financial covenants including funded debt to earnings.  As a result of the restatement adjustments as discussed in note 19, the Company was not in compliance with the covenants as of December 31, 2011, and therefore has classified all outstanding borrowings under the line of credit as current.

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VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(8) Long-term debt

Long-term debt consists of the following:

Revenue Bonds – Revenue Bonds issued by the City of Washington, Missouri (City) were used to finance the development of a property that was built to suit the Company.  The Company has entered into a lease agreement with the City with payments designed to meet the outstanding bond obligations.  Monthly principal and interest payments of approximately $32,000 are due through February 2013.  Monthly principal and interest payments of $55,200 are due from March 2013 through September 2020, at which time the remaining principal balance is due.  The Bonds bear interest at a floating rate as defined in the bond indenture (2.8% as of December 31, 2011).

Missouri Development Finance Board (MDFB) Loan – Loan due to the MDFB bears interest at rate of 5% per annum and is due in semi-annual principal and interest payments.  Scheduled principal payments ranging between $45,000 and $95,000 are due through final maturity in February 2023.

Term Loan #1 – As of December 31, 2010, the Company had a term loan due to a financial institution with a variable interest rate (5% as of December 31, 2010).

Term Loan #2 – As of December 31, 2010, the Company had a term loan due to a financial institution with a variable interest rate (5% as of December 31, 2010).

In December 2011, the Company refinanced Term Loan #1 and Term Loan #2 (hereinafter referred to as Term Loan #3) with a syndicated group of creditors which provides for borrowings of $17,000,000. Term Loan #3 is payable in equal quarterly principal installments of $708,333, commencing on March 15, 2012. In addition, 120 days after year-end (commencing December 31, 2012), the Company agreed to make additional principal payments in an amount equal to 50% of excess cash flow, as defined. The Company’s outstanding borrowings under Term Loan #3 totaled $17,000,000 at December 31, 2011. Term Loan #3 bears interest at a LIBOR rate equal to the applicable rate plus the applicable margin, which varies depending on the Company’s leverage ratio. The applicable rate is defined as the Adjusted Daily LIBOR Rate.  The applicable margin was 2.50% at December 31, 2011.  The interest rate was 2.78% at December 31, 2011. Term Loan #3 expires on December 15, 2014. The instrument is collateralized by all assets of the Company.

Term Loan #3 contains similar operating and financial covenants as the restructured line of credit above for which the Company was not in compliance with at December 31, 2011, and as such, the outstanding balance of $17,000,000 is classified as current in the accompanying consolidated balance sheet.

Capital Expenditure Draw Loan – In February 2011, the Company obtained a capital expenditure draw loan (the Draw Loan) from a financial institution with a maximum amount available of $2,000,000.  The Company may take periodic advances on the Draw Loan between February 10, 2011 and February 10, 2013 at which time monthly principal payments will be due through February 10, 2014 based on the outstanding balance.  The Draw Loan bears interest at a rate equal to the monthly LIBOR rate plus a margin of 4.5% and is payable monthly.  The interest rate margin may be reduced to 4% upon the occurrence of certain events.

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VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(8) Long-term debt (continued)

In December 2011, the Company restructured the Draw Loan with a new financial institution.  The Company’s Draw Loan is structured under the same syndicated instrument and provides for one time borrowings not to exceed $2,000,000. The Company may take periodic advances on the Draw Loan solely for the purpose of purchasing new equipment. The Draw Loan is payable the twelfth month following the date of funding and every third calendar month up to and including November 2014 in the amount of 1/36th of the Funded Principal Amount.  The total outstanding balance is due and payable on December 15, 2014.

The Draw Loan bears interest at either a base rate or LIBOR rate equal to the applicable rate plus the applicable margin, which varies depending on the Company’s leverage ratio. There were no outstanding borrowings under the Draw Loan at December 31, 2011. The Draw Loan has covenants that are consistent with those of the line of credit for which the Company was not in compliance with at December 31, 2011.

Long-term debt consisted of the following as of December 31:

	2011		2010
Revenue Bonds	$	7,849,981	$	8,014,015
Missouri Development Finance Board Loan		1,683,850		1,808,700
Term Note #1		-		18,663,665
Term Note #2		-		979,167
Term Note #3		17,000,000		-
Total financial institution debt		26,533,831		29,465,547
Less current portion		17,276,559		3,681,352
Noncurrent portion	$	9,257,272	$	25,784,195

Maturities of long-term debt are as follows:

Years Ending December 31,
2012	$	17,276,559
2013		495,683
2014		584,117
2015		604,010
2016		624,178
Thereafter		6,949,284
Total long-term debt	$	26,533,831

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VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(9) Subordinated debt

Subordinated debt consists of the following:

Subordinated Note #1 – The Company has a subordinated note payable to a member of the Company which is secured by substantially all assets of the Company.  Interest shall accrue and be added to the principal balance due.  Beginning December 31, 2010, and on each subsequent June 30 and December 31 prior to and including December 31, 2013, installments of $357,143 plus interest are required and the entire outstanding principal and interest is due on December 31, 2013.  Subordinated Note #1 bears interest at 15% per annum.  In addition, prepayment is only allowed in an amount equal to 25% of excess cash flow, as defined, provided the Company is not in default.  Subordinated Note #1 requires that the Company remain in compliance with the senior debt covenants for which the Company was not in compliance with at December 31, 2011, and as such, the outstanding balance of $4,712,617 is classified as current in the accompanying consolidated balance sheet.

Subordinated Note #2 – The Company has a loan payable to the seller of Tulsa which is subordinated to the prior payment in full of all senior debt and is secured by substantially all of the assets of Tulsa.  Subordinated Note #2 is payable in semi-annual principal payments of $179,791.  Interest is payable in semi-annual installments at prime (3.25% as of December 31, 2011 and 2010). The Company may make prepayments of principal if certain quarterly sales targets are met in accordance with the provisions of the Seller Note.  The Seller Note matures on July 31, 2013.

Subordinated debt consisted of the following as of December 31:

	2011		2010
Subordinated note #1	$	4,712,617	$	5,426,903
Subordinated note #2		1,078,745		1,258,535
Total subordinated debt		5,791,362		6,685,438
Less current portion		5,072,199		1,073,868
Noncurrent portion	$	719,163	$	5,611,570

Maturities of subordinated debt are as follows:

Years Ending December 31,
2012	$	5,072,199
2013		719,163
Total subordinated debt	$	5,791,362

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VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(10)    Capital lease

In September 2011, the Company entered into a financing arrangement that provides the Company with up to $4,500,000 in funding through the use of industrial development revenue bonds issued by the City of Washington, Missouri (the City). Pursuant to the arrangements, the Company may acquire equipment for its production facility in the City of Washington.  Following acquisition, the Company may sell and lease back such property and equipment to the City of Washington.  The financing and associated property and equipment obtained under these arrangements are recorded as capital leases.

To the extent the Company does not utilize the maximum amount available by March 1, 2013, it will incur a prepayment fee as set forth in the lease agreement. During 2011, the Company acquired assets totaling $2,484,761 under these arrangements and anticipates utilizing the full amount available under the lease arrangement for the purchase of equipment.

The future minimum lease payments required under the capital lease and the present value of the net minimum lease payments as of December 31, 2011, are as follows:

Years Ending December 31,
2012	$	185,389
2013		228,528
2014		245,088
2015		327,888
2016		327,888
Thereafter		1,733,871
Total minimum lease payments		3,048,652
Less amount representing interest		563,891
Present value of minimum lease payments		2,484,761
Less current portion of capital lease obligation		87,288
Long-term capital lease obligation	$	2,397,473

The assets recorded under the capital lease and included in property and equipment consist of the following at December 31, 2011:

	2011
Machinery and equipment	$	2,484,761
Less accumulated depreciation		(45,445	)
Net book value of assets under capital lease	$	2,439,316

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VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(11) Members’ equity

As of December 31, 2010, Valent held a note receivable from a member for $250,000, noninterest bearing and due on the earlier of (i) December 31, 2012; (ii) termination of employment; or (iii) the effective date of any sale or disposition of all or any significant portion of Valent’s assets.  As security for the payment and performance under the note, the member pledged and granted Valent a security interest in the 67 units of Valent held by the member.  During 2010, employment was terminated, and at that time, the member units were returned to Valent and the note included as contra equity, was forgiven.

(12) Operating leases

The Company operates certain of its production facilities in leased facilities and maintains a portion of their equipment under non-cancelable operating lease agreements having initial terms of more than one year and expiring at various dates through 2022.

The future minimum rental payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year are as follows:

Years Ending December 31,
2012	$	395,300
2013		338,900
2014		227,000
2015		159,100
2016		159,100
Thereafter		308,500
Total	$	1,587,900

Rent expense under these operating leases was $514,895 and $411,775 for the years ended December 31, 2011 and 2010, respectively.

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VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(13) Missouri Development Finance Board

In December 2010, the Company acquired Series 2010 Missouri Development Finance Board BUILD Bonds (Bonds) in the amount of approximately $1,800,000 using proceeds obtained from a loan from the Missouri Development Finance Board for approximately the same amount. The Company will receive semi-annual payments of principal and interest at 5% per annum on the bonds in amounts that are equal to the semi-annual principal and interest payments due on the loan.  Loan interest is also 5% per annum.  The Bonds and associated loan are scheduled to be repaid in February 2023.  The balance outstanding under the Bonds and the loan were approximately $1,700,000 as of December 31, 2011. The balance of the investment in the Bonds is presented gross and included in other assets while the associated debt is in long-term debt in the accompanying consolidated balance sheets.

Pursuant to the Build Missouri Program Agreement dated December 2010, to the extent the Company achieves certain employment objectives, the Company expects to receive a refundable credit to their Missouri income tax of an amount equal to principal and interest payments made under the terms of the above loan.  Such credits will be recorded as a reduction to rent expense in the year loan payments are made if employment objectives are met during that year.  A refundable credit of $259,125 and $0 has been recorded in other assets as of December 31, 2011 and 2010, respectively.

(14) Retirement and profit sharing plans

The Company participates in 401(k) and Simple IRA plans qualified under section 401(k) of the Internal Revenue Code.  Essentially, all full-time employees are eligible to participate in the plans.  Participants may elect to have a portion of their salary contributed to the respective plans within certain limits.  Under the plans, each of the participants may contribute a discretionary matching contribution equal to a uniform percentage of the participant’s compensation contributed to the applicable plan.  The exact percentage, if any, will be determined each year and shall not exceed 3% of a participant’s compensation for the year.  The Company made contributions of $377,473 and $262,405 for the years ended December 31, 2011 and 2010, respectively.

(15) Concentrations

For the years ended December 31, 2011 and 2010, approximately 69% and 65%, respectively, of the Company’s sales were to two customers.  Trade accounts receivable for these customers were approximately 68% and 65% of the total outstanding amounts as of December 31, 2011 and 2010, respectively.

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VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(16)   Related party transactions

The Company incurred management fees to certain members of the Company or their affiliates for consulting services pursuant to management consulting agreements in the amount of $1,000,000 for each of the years ended December 31, 2011 and 2010.  The Company recognized $308,054 and $0 at December 31, 2011 and 2010, respectively, in accrued liabilities related to these management fees.

Lenexa leased warehouse space to a related party under common ownership for $102,000 for the year ended December 31, 2010.  The lessee of the property became an unrelated party during 2011 due to a change in ownership.

Washington leased equipment from a related party under common ownership for $58,000 during the year ended December 31, 2011.

(17)  Income taxes

St. Louis provides for current and deferred income taxes to reflect the impact of temporary differences between the recorded amounts of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws and regulations.

Income tax expense (benefit) was computed as follows:

	2011			2010
Current income tax (benefit) expense
Federal and state income taxes	$	(209,511	)	$	61,436
Deferred income tax benefit		(374,845	)		(341,362	)
Total income tax benefit	$	(584,356	)	$	(279,926	)

The significant temporary differences and the related deferred tax assets and liabilities are as follows:

	2011			2010
Deferred tax liabilities
Inventory	$	-		$	(10,983	)
Intangible assets		(2,096,239	)		(2,456,053	)
Property and equipment		(342,713	)		(346,761	)
Total deferred income taxes	$	(2,438,952	)	$	(2,813,797	)
Current liabilities	$	-		$	(10,983	)
Net noncurrent liabilities		(2,438,952	)		(2,802,814	)
Total deferred taxes	$	(2,438,952	)	$	(2,813,797	)

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VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(18)  Contingencies, risks and uncertainties

As a contract manufacturer of precision components, the Company currently fabricates precision components and assemblies to customer specifications, primarily for the aerospace industry.  The Company is subject to various risks and uncertainties relating to future operating results, liquidity and financial condition that could cause actual results to differ from the estimates made in the Company’s financial statements.  Such risks and uncertainties include the profitably of the commercial airline industry, significant customers, labor and commodity markets, and the Company’s ability to maintain financing.

(19) Restatements

The Company’s previous consolidated financial statements reflected the acquisition of CT in a manner similar to a pooling of interests.  During 2012, management changed their accounting policy and on October 22, 2012 restated the previously issued consolidated financial statements as of and for the year ended December 31, 2009 in order to reflect the business combination in accordance with generally accepted accounting principles.  Subsequent to that date, the Company entered into a membership interest purchased agreement with LMI Aerospace, Inc. (LMI) and determined  that the consolidated financial statements should be restated to change the accounting for revenue recognition for VOI arrangements and the lease obligation associated with the Washington, Missouri facility lease as further described below.  

Revenue Recognition and Washington Lease

The Company has restated net sales associated with the VOI arrangements.  The VOI arrangements originated in 2009 and included contractual agreements between various divisions of the Company and an unrelated third party (the VOI Customer).  The Company’s previous accounting policy for revenue recognition was to recognize revenue as product was delivered as in management’s opinion, the contractual agreements coupled with a verbal arrangement, supported the conclusion that the VOI Customer enjoyed all of the rights and responsibilities of ownership at the time of receipt of the products.

However, the Company has subsequently determined that, because the contract indicated that title does not transfer until the products’ use, the Company should not recognize revenue and related cost of sales until the VOI Customer uses the product.  As a result, the Company has derecognized revenue from sales related to product shipped to but not yet used by the VOI Customer which resulted in an increase of net sales and cost of sales of $625,424 and $330,634 for the year ended December 31, 2011, respectively, and a reduction of net sales and cost of sales of $973,118 and $650,813 for the year ended December 31, 2010, respectively.

- 22 -

VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(19) Restatements (continued)

The Company has also restated the 2011 and 2010 consolidated financial statements in order to recognize ownership of real property in Washington, Missouri during its construction period.  On August 1, 2010, the City issued revenue bonds (the Bonds) in the total maximum principal amount of $8,027,039.  The proceeds of the Bonds were used to acquire certain real property (the Project Site) and then lease the Project Site to Washington Civic Industrial Corporation (WCIC) for the purpose of constructing a manufacturing facility thereon.  WCIC also was obligated for the purchase and installation of equipment and fixtures related thereto (the Project Improvements).  Effective September 3, 2010, the Company entered into a sublease of the Project Site and Project Improvements from WCIC.  The sublease requires monthly payments of an amount equal to principal and interest payments required on the Bonds by the Trust Indenture, as well as additional rent for other costs as agreed to by WCIC and the Company.  Initially, the Company recorded no ownership of the Project Site during its construction period, rather expensed payments made under the sublease agreement with WCIC consistent with treatment as an operating lease.

However, the Company has subsequently determined that it should be deemed the owner of the property during the construction period under the guidance of ASC 840-40, Sale-Leaseback Transactions, because the Company has provided certain limited indemnities to the City, Trustee and their governing body, and other third-parties with respect to costs arising from third-party damage claims during construction.  Accordingly, the Company has recorded the transaction as a financing transaction during the construction period and has recorded capital assets totaling $2,225,621, including $18,192 of capitalized interest as of December 31, 2010 and capital assets of $7,165,434, including $206,011 of capitalized interest as of December 31, 2011.  Additionally, the Company recorded associated deferred financing costs of $190,232.

As of December 31, 2011 and 2010, remaining funds available for the Project Site and Project Improvements of $1,154,781 and $5,771,075, respectively were held in escrow by the trust, have been presented gross of the lease obligation, and are included in other assets in the accompanying consolidated balance sheets.     

Business Combination

Additionally, the Company restated the 2011 and 2010 consolidated financial statements on October 3, 2012 to account for the acquisition of CT.  On November 13, 2009, Valent acquired all of the outstanding equity of CT Systems, LLC and its wholly owned subsidiary (CT). Consideration paid of $29,807,000 consisted of cash of $8,625,000, which was recorded as a members’ distribution in the 2009 consolidated financial statements, and equity of the Company with an estimated fair value of $21,182,000, which was determined using a combination of market transactions for comparable companies as well as an income approach using the discounted future estimated cash flows.  The acquisition was consummated in order to develop operating synergies and to better serve shared customers.

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VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(19) Restatements (continued)

Prior to October 3, 2012, the Company had not previously recorded its acquisition of the controlling financial interests in CT as a business combination under the acquisition method (ASC 805) as of or for the years ended December 31, 2009 through 2011. The acquisition method requires that the Acquired Entity’s assets acquired and liabilities assumed be measured and recognized at fair value and goodwill recorded for the excess of the consideration paid over the fair value of its identifiable net assets. Valent has previously reported this transaction in a manner similar to a pooling of interests whereby the Acquired Entity’s assets and liabilities were recorded at their historical carrying amount on the date of the transaction and the revenues and expenses for the period prior to the acquisition were included in the operating results for the year ended December 31, 2009.  As a result, the difference between the carrying amount and fair value of the net assets acquired on the date of acquisition was not recognized. 

The following table includes information regarding the original carrying value of the net assets acquired as previously reported under the pooling of interests method, adjustments to restate the acquisition using the acquisition method, and estimated fair value of the net assets acquired on November 13, 2009:

	Pooling of			Fair Value			Acquisition Date
	Interests			Adjustments			Fair Value
Cash	$	1,601			-		$	1,601
Accounts receivable		5,042,690			-			5,042,690
Inventory		9,825,282			211,315			10,036,597
Prepaid expenses		351,494			-			351,494
Property and equipment		6,240,252			(65,435	)		6,174,817
Other assets		62,660			(62,660	)		-
Identifiable intangible assets		3,551,069			21,996,931			25,548,000
Goodwill		9,710,583			(3,367,612	)		6,342,971
Accounts payable and accrued liabilities		(5,064,240	)		13,889			(5,050,351	)
Other liabilities		(11,356	)		-			(11,356	)
Bank debt		(15,354,551	)		-			(15,354,551	)
Deferred income taxes		(498,912	)		(2,776,000	)		(3,274,912	)
Net assets	$	13,856,572		$	15,950,428		$	29,807,000

Goodwill recognized of $6,342,971 is not tax deductible and relates to the synergies the Company expects to realize as a result of the transaction.

The bank debt acquired consists primarily of a line of credit which expired in February 2010. The fair value of the debt is impacted by changes in CT System’s credit spread as well as market rates for debt with similar characteristics (typically measured by the credit default swap rates).  Based on the short duration of the debt and the Company’s analysis of changes in credit spreads, the fair value of the debt has been estimated to equal its carrying value.

- 24 -

VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(19) Restatements (continued)

The Company has restated the consolidated financial statements as of and for the years ended December 31, 2011 and 2010 as follows:

	Consolidated Balance Sheet
	As of December 31, 2011
	As Previously			Oct 3, 2012			Dec 24, 2012
	Reported			Adjustments			Adjustments			Restated
Current assets:
Cash	$	2,419,967		$	-		$	(201,891	)	$	2,218,076
Trade receivables, net		14,085,439			-			(1,721,808	)		12,363,631
Inventories		22,167,882			(438,000	)		1,232,343			22,962,225
Prepaid expenses		903,125			-			(152,962	)		750,163
Income tax receivable		261,120			-			(105,360	)		155,760
Total current assets		39,837,533			(438,000	)		(949,678	)		38,449,855
Property and equipment, net		23,426,122			(65,434	)		7,881,055			31,241,743
Other assets:
Other assets		1,085,852			-			2,929,242			4,015,094
Deferred financing costs, net		189,963			-			156,289			346,252
Intangible assets, net		7,072,667			17,040,334			-			24,113,001
Goodwill		17,917,419			(3,739,791	)		250,067			14,427,695
Total other assets		26,265,901			13,300,543			3,335,598			42,902,042
Total assets	$	89,529,556		$	12,797,109		$	10,266,975		$	112,593,640
Current liabilities:
Accounts payable	$	11,369,819		$	-			870,988		$	12,240,807
Accrued expenses and other liabilities		3,020,712			-			(51,906	)		2,968,806
Deferred revenue		734,078			-			90,611			824,689
Line of credit		-			-			13,203,825			13,203,825
Current portion of long-term debt		3,994,488			-			18,441,558			22,436,046
Total current liabilities		19,119,097			-			32,555,076			51,674,173
Line of credit		13,203,825			-			(13,203,825	)		-
Long-term debt, net of current portion		16,564,141			-			(4,909,396	)		11,654,745
Subordinated debt, net of current portion		4,717,494			-			(3,998,331	)		719,163
Deferred income taxes		293,870			2,776,000			(630,918	)		2,438,952
Total liabilities		53,898,427			2,776,000			9,812,606			66,487,033
Members' contributions		32,741,354			22,694,009			(10,189,509	)		45,245,854
Members' distributions		(10,714,738	)		-			10,189,508			(525,230	)
Members' retained earnings		13,604,513			(12,672,900	)		454,370			1,385,983
Members' equity		35,631,129			10,021,109			454,369			46,106,607
Total liabilities and members' equity	$	89,529,556		$	12,797,109			10,266,975		$	112,593,640

- 25 -

VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(19) Restatements (continued)

	Consolidated Balance Sheet
	As of December 31, 2010
	As Previously			Oct 3, 2012			Dec 24, 2012
	Reported			Adjustments			Adjustments			Restated
Current assets:
Cash	$	306,092		$	-		$	(94,767	)	$	211,325
Trade receivables, net		11,986,906			-			(2,319,723	)		9,667,183
Inventories		20,072,453			(438,000	)		1,568,603			21,203,056
Prepaid expenses		502,326			-			(122,831	)		379,495
Income tax receivable		142,399			-			-			142,399
Total current assets		33,010,176			(438,000	)		(968,718	)		31,603,458
Property and equipment, net		17,324,970			(65,424	)		2,225,613			19,485,159
Other assets:
Other assets		803,760			-			7,579,775			8,383,535
Deferred financing costs, net		-			-			182,204			182,204
Intangible assets, net		8,663,323			19,362,806			9			28,026,138
Goodwill		17,917,419			(3,739,791	)		250,067			14,427,695
Total other assets		27,384,502			15,623,015			8,012,055			51,019,572
Total assets	$	77,719,648		$	15,119,591		$	9,268,950		$	102,108,189
Current liabilities:
Accounts payable	$	6,174,783		$	-		$	46,574		$	6,221,357
Accrued expenses and other liabilities		2,164,204			-			-			2,164,204
Deferred revenue		1,160,786			-			-			1,160,786
Deferred income taxes		10,983			-			-			10,983
Current portion of long-term debt		4,466,725			-			288,495			4,755,220
Total current liabilities		13,977,481			-			335,069			14,312,550
Line of credit		9,536,439			-			-			9,536,439
Long-term debt, net of current portion		16,249,975			-			9,534,220			25,784,195
Subordinated debt, net of current portion		5,611,570			-			-			5,611,570
Deferred income taxes		370,380			2,776,000			(343,566	)		2,802,814
Total liabilities		45,745,845			2,776,000			9,525,723			58,047,568
Members' contributions		32,741,354			22,694,009			(10,189,509	)		45,245,854
Members' distributions		(10,661,338	)		-			10,189,508			(471,830	)
Members' retained earnings (deficit)		9,893,787			(10,350,418	)		(256,772	)		(713,403	)
Members' equity		31,973,803			12,343,591			(256,773	)		44,060,621
Total liabilities and members' equity	$	77,719,648		$	15,119,591		$	9,268,950		$	102,108,189

- 26 -

VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(19) Restatements (continued)

	Consolidated Statement of Income
	For the Year Ended December 31, 2011
	As Previously			Oct 3, 2012			Dec 24, 2012
	Reported			Adjustments			Adjustments			Restated
Net sales	$	86,136,447		$	-		$	374,425		$	86,510,872
Cost of sales		70,795,058			-			663,822			71,458,880
Gross profit		15,341,389			-			(289,397	)		15,051,992
Selling, general and administrative expenses		8,311,316			(1,590,655	)		(635,141	)		6,085,520
Amortization of intangible assets		-			3,913,137			-			3,913,137
Operating income		7,030,073			(2,322,482	)		345,744			5,053,335
Other income (expense)
Interest expense		(2,237,031	)		-			(115,225	)		(2,352,256	)
Management fee		(1,000,000	)		-			-			(1,000,000	)
Miscellaneous income		45,004			-			298,631			343,635
Relocation costs		(451,599	)		-			-			(451,599	)
Loss on disposal of property and equipment		(78,085	)		-			-			(78,085	)
Total other income (expense)		(3,721,711	)		-			183,406			(3,538,305	)
Income before income taxes		3,308,362			(2,322,482	)		529,150			1,515,030
Income tax benefit		(402,364	)		-			(181,992	)		(584,356	)
Net income	$	3,710,726		$	(2,322,482	)	$	711,142		$	2,099,386

	Consolidated Statement of Income
	For the Year Ended December 31, 2010
	As Previously			Oct 3, 2012			Dec 24, 2012
	Reported			Adjustments			Adjustments			Restated
Net sales	$	77,813,175		$	-		$	(940,244	)	$	76,872,931
Cost of sales		65,317,774			-			(387,769	)		64,930,005
Gross profit		12,495,401			-			(552,475	)		11,942,926
Selling, general and administrative expenses		6,957,881			(1,783,189	)		(90,599	)		5,084,093
Amortization of intangible assets		-			4,041,001			-			4,041,001
Operating income		5,537,520			(2,257,812	)		(461,876	)		2,817,832
Other income (expense)
Interest expense		(2,589,822	)		-			(9,863	)		(2,599,685	)
Management fee		(1,000,000	)		-			-			(1,000,000	)
Miscellaneous income		1,201			-			-			1,201
Acquisition costs		(2,027	)		-			-			(2,027	)
Gain (loss) on disposal of property and equipment		(76,651	)		-			78,278			1,627
Total other income (expense)		(3,667,299	)		-			68,415			(3,598,884	)
Income (loss) before income taxes		1,870,221			(2,257,812	)		(393,461	)		(781,052	)
Income tax (benefit) provision		14,559			-			(294,485	)		(279,926	)
Net income (loss)	$	1,855,662		$	(2,257,812	)	$	(98,976	)	$	(501,126	)

	Consolidated Statement of Members' Equity
	For the Year Ended December 31, 2011
	As Previously				Oct 3, 2012				Dec 24, 2012
	Reported				Adjustments				Adjustments				Restated
Balance, January 1		$	31,973,803			$	12,343,591			$	(256,773	)		$	44,060,621
Net income			3,710,726				(2,322,482	)			711,142				2,099,386
Distributions to members			(53,400	)			-				-				(53,400	)
Balance, December 31		$	35,631,129			$	10,021,109			$	454,369			$	46,106,607

- 27 -

VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(19) Restatements (continued)

	Consolidated Statement of Members' Equity
	For the Year Ended December 31, 2010
	As Previously			Oct 3, 2012				Dec 24, 2012
	Reported			Adjustments				Adjustments				Restated
Balance, January 1		$	30,118,141		$	14,601,403			$	(157,797	)		$	44,561,747
Net income			1,855,662			(2,257,812	)			(98,976	)			(501,126	)
Distributions to members			-			-				-				-
Balance, December 31		$	31,973,803		$	12,343,591			$	(256,773	)		$	44,060,621

	Consolidated Statement of Cash Flows
	For the Year Ended December 31, 2011
	As Previously			Oct 3, 2012			Dec 24, 2012
	Reported			Adjustments			Adjustments			Restated
Cash flows from operating activities
Net income	$	3,710,726		$	(2,322,482	)	$	711,142		$	2,099,386
Adjustments to reconcile net income to net cash flows from operating activities
Depreciation		3,618,522			-			28,314			3,646,836
Amortization of intangible assets		1,590,655			2,322,482			(3,669,804	)		243,333
Amortization of pre-production costs		243,333			-			3,669,804			3,913,137
Amortization of deferred financing costs		87,396			-			25,915			113,311
Deferred income tax benefit		(87,493	)		-			(287,352	)		(374,845	)
Loss on disposal of property and equipment		78,085			-			-			78,085
Net change in operating assets and liabilities
Trade receivables		(2,098,533	)		-			(597,915	)		(2,696,448	)
Inventories		(863,913	)		-			336,260			(527,653	)
Prepaid expenses and other assets		(384,251	)		-			30,131			(354,120	)
Accounts payable		3,406,395			-			(107,126	)		3,299,269
Accrued expenses and other liabilities		2,491			-			105,360			107,851
Deferred revenue		(426,708	)		-			90,611			(336,097	)
Net cash flows from operating activities		8,876,705			-			335,340			9,212,045
Cash flows from investing activities
Purchase of property and equipment		(6,850,391	)		-			(187,819	)		(7,038,210	)
Proceeds from the sale of property and equipment		378,762			-			-			378,762
Payment of pre-production costs		(306,933	)		-			(90,611	)		(397,544	)
Payment of deferred production costs		(1,230,541	)		-			-			(1,230,541	)
Reimbursement of pre-production costs		75,084			-			-			75,084
Net cash flows used by investing activities		(7,934,019	)		-			(278,430	)		(8,212,449	)
Cash flows from financing activities
Net borrowings of line of credit		2,554,095			-			-			2,554,095
Repayment of financial institution debt		(5,996,998	)		-			-			(5,996,998	)
Repayment of bonds payable		-			-			(164,034	)		(164,034	)
Repayment of subordinated note #1		(714,286	)		-			-			(714,286	)
Repayment of subordinated note #2		(179,790	)		-			-			(179,790	)
Proceeds from long-term debt		3,354,166			-			-			3,354,166
Payment of financing costs		(277,359	)		-			-			(277,359	)
Distributions to members		(53,400	)		-			-			(53,400	)
Reimbursements for the purchase of equipment under a long-term capital lease		2,484,761			-			-			2,484,761
Net cash flows from financing activities		1,171,189			-			(164,034	)		1,007,155
Net change in cash		2,113,875			-			(107,124	)		2,006,751
Cash, beginning of period		306,092			-			(94,767	)		211,325
Cash, end of period	$	2,419,967		$	-			(201,891	)	$	2,218,076

- 28 -

VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(19) Restatements (continued)

	Consolidated Statement of Cash Flows
	For the Year Ended December 31, 2010
	As Previously			Oct 3, 2012			Dec 24, 2012
	Reported			Adjustments			Adjustments			Restated
Cash flows from operating activities
Net income	$	1,855,662		$	(2,257,812	)	$	(98,976	)	$	(501,126	)
Adjustments to reconcile net income to net cash flows from operating activities
Depreciation		3,294,855			-			-			3,294,855
Amortization of intangible assets		1,783,192			2,257,812			(3,951,469	)		89,535
Amortization of pre-production costs		89,535			-			3,951,469			4,041,004
Amortization of deferred financing costs		154,167			-			8,028			162,195
Deferred income tax benefit		(46,877	)		-			(294,485	)		(341,362	)
Loss on disposal of property and equipment		76,651			-			(78,278	)		(1,627	)
Net change in operating assets and liabilities
Trade receivables		(2,236,985	)		-			973,120			(1,263,865	)
Inventories		122,062			-			(600,665	)		(478,603	)
Prepaid expenses and other assets		(210,677	)		-			122,831			(87,846	)
Accounts payable		(329,883	)		-			(94,768	)		(424,651	)
Accrued expenses and other liabilities		679,185			-			(1	)		679,184
Deferred revenue		(1,011,706	)		-			-			(1,011,706	)
Net cash flows from operating activities		4,219,181			-			(63,194	)		4,155,987
Cash flows from investing activities
Purchase of property and equipment		(1,361,572	)		-			(18,192	)		(1,379,764	)
Proceeds from the sale of property and equipment		508,571			-			-			508,571
Payment of pre-production costs		(328,327	)		-			-			(328,327	)
Payment of contingent consideration		(122,111	)		-			-			(122,111	)
Net cash flows used by investing activities		(1,303,439	)		-			(18,192	)		(1,321,631	)
Cash flows from financing activities
Net borrowings of line of credit		609,843			-			-			609,843
Repayment of financial institution debt		(3,150,263	)		-			-			(3,150,263	)
Repayment of bonds payable		-			-			(13,381	)		(13,381	)
Repayment of subordinated note #1		(536,934	)		-			-			(536,934	)
Net cash flows used by financing activities		(3,077,354	)		-			(13,381	)		(3,090,735	)
Net change in cash		(161,612	)		-			(94,767	)		(256,379	)
Cash, beginning of period		467,704			-			-			467,704
Cash, end of period	$	306,092		$	-		$	(94,767	)	$	211,325

(20)  Subsequent events

The Company has evaluated subsequent events through December 24, 2012, the date which the consolidated financial statements are available to be issued.  Except as noted below, no issues were identified for adjustment to, or disclosure in, the notes to the consolidated financial statements.

In January 2012, the Company entered into an interest rate swap agreement designed to fix the variable rate portion of interest on Term Loan #3 at .81%, such that the effective interest rate, including the current applicable margin of 2.5%, is 3.31%. The forward starting swap begins in February 2013 and expires in November 2014 and is designed so that the notional amount of approximately $14,200,000 is reduced as scheduled principal payments are made.

In March 2012, a member of the Company acquired 55,511 common units of the Company for $4,628,820.  The proceeds of the capital contribution were used to repay amounts due under Subordinated Note #1.

- 29 -

VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(20)  Subsequent events (continued)

In March 2012, the Company issued 98,340 Class A Convertible Senior Preferred Units (the Preferred Units) of the Company for $8,200,000.  Such securities yield a 10% preferred return and each Preferred Unit may be converted to one common unit at any time after January 1, 2015 or earlier upon a change of control without prior consent of the Company’s management committee.  The Preferred Units may be redeemed at any time by the Company upon approval of the Company’s management committee at an amount equal to the original capital contribution plus any unpaid preferred return.

In April 2012, the Company entered into a lease agreement with the City of Fredonia, Kansas (City of Fredonia) for the lease of property and improvements in the City of Fredonia.  Monthly payments were due beginning on May 1, 2012 through April 1, 2032 in an amount sufficient to service the total principal and interest on the underlying Industrial Revenue Bonds Series 2012A issued by the City of Fredonia in the amount of $2,184,726.

In April 2012, the Company acquired 80% of certain assets and assumed 80% of certain liabilities of Ozark Mountain Technologies, Inc. (OMT) for $10,123,706.  OMT provides metal finishing services at its facility in Cuba, Missouri.

In June 2012, the Company entered into a lease agreement with the City of Fredonia for the lease of equipment.  Monthly payments were due beginning on June 27, 2012 through July 1, 2021 in an amount sufficient to service the total principal and interest on the underlying Industrial Development Revenue Bonds Series 2012B issued by the City of Fredonia in the amount of $3,060,000.

In August 2012, the Company executed an amendment to its existing line of credit which increases the maximum borrowings to $35,000,000.

In September 2012, the Company entered into a lease agreement with the City of Washington for the lease of equipment.  Monthly payments are due beginning on November 1, 2012 through October 1, 2022 in an amount sufficient to service the total principal and interest on the underlying Taxable Industrial Development Revenue Bonds Series 2012 issued by the City of Washington in the amount of $4,500,000.

In September 2012, the Company obtained a loan in the amount of $2,247,966 with interest at a rate of 3.21% per annum from a bank pursuant to a master loan agreement which allows for borrowings of up to $10,000,000 in order to finance certain equipment purchased by the Company.  Such loan is due in 84 monthly principal and interest payments of $29,916 beginning on October 1, 2012.

In December 2012, the Company acquired the remaining 20% of certain assets and assumed the remaining 20% of certain liabilities of OMT for $2,500,000.  $500,000 was paid in cash on the closing date, with the remaining $2,000,000 to be paid in thirty-six equal consecutive monthly payments of $55,556.

In December, 2012, the Company executed a Membership Interest Purchase Agreement with LMI whereby LMI agreed to acquire all the issued and outstanding equity interests of the Company for an initial consideration of $237,000,000, less approximately $12,573,000 which will be used to repay all principal outstanding for Industrial Revenue Bond obligations with the cities of Fredonia, Kansas and Washington, Missouri.

- 30 -

SUPPLEMENTARY INFORMATION

INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTARY INFORMATION

To the Members

VALENT AEROSTRUCTURES, LLC

Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements taken as a whole. The attached consolidating information is presented for purposes of additional analysis of the consolidated financial statements rather than to present the financial position and results of operations of the individual companies.  Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements.  The consolidating information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with U.S. generally accepted auditing standards.  In our opinion, the information is fairly stated in all material respects in relation to the consolidated financial statements taken as a whole.

As described in note 19 to the consolidated financial statements, the Company has restated its December 31, 2011 and 2010 consolidated financial statements.

/s/ Mayer Hoffman McCann P.C.

Mayer Hoffman McCann P.C.

Leawood, Kansas

December 24, 2012

- 31 -

VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

CONSOLIDATING BALANCE SHEETS

December 31, 2011

							Cottonwood
	St. Louis			Lenexa			Falls			Fredonia		Washington			Wichita			Tulsa			Valent			Eliminations			Consolidated
A S S E T S
CURRENT ASSETS
Cash	$	1,000		$	147		$	454		$	604	$	1,428		$	300		$	250		$	2,213,893		$	-		$	2,218,076
Trade receivables, net		771,836			783,510			4,881,120			1,636,698		3,355,410			2,083,196			367,464			15,126			(1,530,729	)		12,363,631
Inventories, net		2,752,446			1,760,860			3,068,259			2,799,773		6,034,399			4,413,117			481,515			1,862,253			(210,397	)		22,962,225
Prepaid expenses and other current assets		69,477			36,023			8,155			10,193		349,389			48,693			6,065			222,168			-			750,163
Income tax receivable		155,760			-			-			-		-			-			-			-			-			155,760
TOTAL CURRENT ASSETS		3,750,519			2,580,540			7,957,988			4,447,268		9,740,626			6,545,306			855,294			4,313,440			(1,741,126	)		38,449,855
PROPERTY AND EQUIPMENT, net		1,306,000			140,779			2,459,164			3,505,593		16,602,978			5,511,630			1,434,459			281,140			-			31,241,743
OTHER ASSETS
Other assets		125,340			-						36,869		3,640,020			215,518			-			5,601			(8,254	)		4,015,094
Intercompany receivables		862,304			(3,736,650	)		1,724,608			1,149,738		-			-			-			24,683,848			(24,683,848	)		-
Investment in subsidiary		-			-			-			-		-			-			-			52,235,560			(52,235,560	)		-
Deferred financing costs, net		-			-			-			-		156,289			-			-			189,963			-			346,252
Intangible assets, net		5,362,707			2,878,235			7,962,508			3,357,476		2,763,184			738,826			1,050,065			-			-			24,113,001
Goodwill		3,792,697			539,782			1,323,313			687,176		-			3,276,772			4,807,955			-			-			14,427,695
TOTAL OTHER ASSETS		10,143,048			(318,633	)		11,010,429			5,231,259		6,559,493			4,231,116			5,858,020			77,114,972			(76,927,662	)		42,902,042
TOTAL ASSETS	$	15,199,567		$	2,402,686		$	21,427,581		$	13,184,120	$	32,903,097		$	16,288,052		$	8,147,773		$	81,709,552		$	(78,668,788	)	$	112,593,640
L I A B I L I T I E S
CURRENT LIABILITIES
Accounts payable	$	761,695		$	744,713		$	3,098,415		$	2,347,628	$	3,845,161		$	2,723,157		$	225,251		$	33,770		$	(1,538,983	)	$	12,240,807
Accrued expenses and other liabilities		343,328			91,966			476,365			828,737		227,168			233,905			114,604			652,733			-			2,968,806
Deferred revenue		-			-			-			-		824,689			-			-			-			-			824,689
Lines of credit		1,336,901			1,312,315			2,617,116			-		-			3,054,782			1,533,965			13,203,825			(9,855,079	)		13,203,825
Current portion of long-term debt		-			-			-			-		363,847			-			359,582			21,712,617			-			22,436,046
TOTAL CURRENT LIABILITIES		2,441,924			2,148,994			6,191,896			3,176,365		5,260,865			6,011,844			2,233,402			35,602,945			(11,394,062	)		51,674,173
TERM DEBT AND CAPITAL LEASE OBLIGATIONS, net of current portion		1,000,000			-			3,000,000			3,646,286		13,837,228			3,000,000			2,000,000			-			(14,828,769	)		11,654,745
SUBORDINATED DEBT, net of current portion		-			-			-			-		-			-			719,163			-			-			719,163
DEFERRED INCOME TAXES		2,438,952			-			-			-		-			-			-			-			-			2,438,952
TOTAL LIABILITIES		5,880,876			2,148,994			9,191,896			6,822,651		19,098,093			9,011,844			4,952,565			35,602,945			(26,222,831	)		66,487,033
E Q U I T Y
COMMON STOCK		65,695			-			-			-		-			-			-			-			(65,695	)		-
ADDITIONAL PAID IN CAPITAL		10,432,741			-			-			-		-			-			-			-			(10,432,741	)		-
MEMBERS' CONTRIBUTIONS		-			1,795,891			15,604,395			3,088,016		4,578,862			10,500,000			4,000,000			45,245,854			(39,567,164	)		45,245,854
MEMBERS' DISTRIBUTIONS		-			-			-			-		(416,830	)		55,000			-			(525,230	)		361,830			(525,230	)
RETAINED EARNINGS (DEFICIT)		(1,179,745	)		(1,542,199	)		(3,368,710	)		3,273,453		9,642,972			(3,278,792	)		(804,792	)		1,385,983			(2,742,187	)		1,385,983
TOTAL EQUITY		9,318,691			253,692			12,235,685			6,361,469		13,805,004			7,276,208			3,195,208			46,106,607			(52,445,957	)		46,106,607
TOTAL LIABILITIES AND EQUITY	$	15,199,567		$	2,402,686		$	21,427,581		$	13,184,120	$	32,903,097		$	16,288,052		$	8,147,773		$	81,709,552		$	(78,668,788	)	$	112,593,640

See Notes to Consolidated Financial Statements

- 32 -

VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

CONSOLIDATING BALANCE SHEETS

 December 31, 2010

							Cottonwood
	St. Louis			Lenexa			Falls			Fredonia			Washington			Wichita			Tulsa			Valent			Eliminations			Consolidated
A S S E T S
CURRENT ASSETS
Cash	$	1,000		$	(55,358	)	$	454		$	(38,504	)	$	(88,659	)	$	(41,233	)	$	250		$	433,375		$	-		$	211,325
Trade receivables, net		599,860			973,639			4,372,883			1,084,588			1,841,545			1,571,499			222,005			-			(998,836	)		9,667,183
Inventories, net		1,791,330			2,147,304			3,010,941			2,513,053			5,673,669			5,127,950			514,740			644,371			(220,302	)		21,203,056
Prepaid expenses and other current assests		25,811			65,017			8,547			9,535			71,439			150,710			24,368			24,068			-			379,495
Income tax receivable		142,399			-			-			-			-			-			-			-			-			142,399
TOTAL CURRENT ASSETS		2,560,400			3,130,602			7,392,825			3,568,672			7,497,994			6,808,926			761,363			1,101,814			(1,219,138	)		31,603,458
PROPERTY AND EQUIPMENT, net		1,092,657			181,359			2,452,887			1,732,834			6,133,501			5,632,421			2,088,056			171,444			-			19,485,159
OTHER ASSETS
Other assets		93,404			-			-			-			7,910,519			334,331			45,281			-			-			8,383,535
Intercompany receivables		862,304			(3,736,650	)		1,724,608			1,149,738			-			-			-			28,409,754			(28,409,754	)		-
Investment in subsidiary		-			9,765,165			-			-			-			-			-			49,333,024			(59,098,189	)		-
Deferred financing costs		-			-			-			-			182,204			-			-			-			-			182,204
Intangible assets, net		6,081,086			3,292,837			9,084,626			3,821,487			3,527,940			927,591			1,290,571			-			-			28,026,138
Goodwill		3,792,697			539,783			1,323,314			687,176			-			3,276,770			4,807,955			-			-			14,427,695
TOTAL OTHER ASSETS		10,829,491			9,861,135			12,132,548			5,658,401			11,620,663			4,538,692			6,143,807			77,742,778			(87,507,943	)		51,019,572
TOTAL ASSETS	$	14,482,548		$	13,173,096		$	21,978,260		$	10,959,907		$	25,252,158		$	16,980,039		$	8,993,226		$	79,016,036		$	(88,727,081	)	$	102,108,189
L I A B I L I T I E S
CURRENT LIABILITIES
Accounts payable	$	134,089		$	712,212		$	2,835,302		$	554,585		$	1,270,153		$	1,426,588		$	138,895		$	148,369		$	(998,836	)	$	6,221,357
Accrued expenses and other liabilities		293,067			249,487			176,976			251,992			438,503			283,344			269,963			200,872			-			2,164,204
Deferred revenue		-			4,368			-			-			1,156,418			-			-			-			-			1,160,786
Deferred income taxes		10,983			-			-			-			-			-			-			-			-			10,983
Current portion of long-term debt		-			-			-			-			288,495			-			359,582			4,107,143			-			4,755,220
TOTAL CURRENT LIABILITIES		438,139			966,067			3,012,278			806,577			3,153,569			1,709,932			768,440			4,456,384			(998,836	)		14,312,550
LINE OF CREDIT		546,880			2,012,041			1,873,992			1,200,000			-			3,944,652			3,560,102			9,536,439			(13,137,667	)		9,536,439
TERM DEBT AND CAPITAL LEASE OBLIGATIONS, net of current portion		929,550			-			3,324,608			4,396,248			12,021,672			3,642,456			491,773			16,249,975			(15,272,087	)		25,784,195
SUBORDINATED DEBT, net of current portion		-			-			-			-			-			-			898,953			4,712,617			-			5,611,570
DEFERRED INCOME TAXES		2,802,814			-			-			-			-			-			-			-			-			2,802,814
TOTAL LIABILITIES		4,717,383			2,978,108			8,210,878			6,402,825			15,175,241			9,297,040			5,719,268			34,955,415			(29,408,590	)		58,047,568
E Q U I T Y
COMMON STOCK		65,695			-			-			-			-			-			-			-			(65,695	)		-
ADDITIONAL PAID IN CAPITAL		10,432,741			-			-			-			-			-			-			-			(10,432,741	)		-
MEMBERS' CONTRIBUTIONS		-			11,114,582			15,604,395			3,088,016			4,578,862			10,610,000			4,000,000			45,245,854			(48,995,855	)		45,245,854
MEMBERS' DISTRIBUTIONS		-			-			-			-			(416,830	)		(55,000	)		-			(471,830	)		471,830			(471,830	)
RETAINED EARNINGS (DEFICIT)		(733,271	)		(919,594	)		(1,837,013	)		1,469,066			5,914,885			(2,872,001	)		(726,042	)		(713,403	)		(296,030	)		(713,403	)
TOTAL EQUITY		9,765,165			10,194,988			13,767,382			4,557,082			10,076,917			7,682,999			3,273,958			44,060,621			(59,318,491	)		44,060,621
TOTAL LIABILITIES AND EQUITY	$	14,482,548		$	13,173,096		$	21,978,260		$	10,959,907		$	25,252,158		$	16,980,039		$	8,993,226		$	79,016,036		$	(88,727,081	)	$	102,108,189

See Notes to Consolidated Financial Statements

- 33 -

VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF INCOME AND MEMBERS’ EQUITY

Year Ended December 31, 2011

							Cottonwood
	St. Louis			Lenexa			Falls			Fredonia			Washington			Wichita			Tulsa			Valent			Eliminations			Consolidated
NET SALES	$	5,809,839		$	10,027,034		$	27,945,272		$	12,284,376		$	23,997,131		$	16,776,068		$	3,514,238		$	-		$	(13,843,086	)	$	86,510,872
COST OF SALES		5,374,870			8,914,302			27,264,307			8,837,164			17,210,860			14,863,781			2,832,949			12,659			(13,852,012	)		71,458,880
GROSS PROFIT		434,969			1,112,732			680,965			3,447,212			6,786,271			1,912,287			681,289			(12,659	)		8,926			15,051,992
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		91,547			65,545			89,627			260,407			943,508			1,045,499			55,132			3,534,255			-			6,085,520
AMORTIZATION OF INTANGIBLE ASSETS		718,379			414,603			1,122,118			464,011			764,756			188,765			240,505			-			-			3,913,137
OPERATING INCOME (LOSS)		(374,957	)		632,584			(530,780	)		2,722,794			5,078,007			678,023			385,652			(3,546,914	)		8,926			5,053,335
OTHER INCOME (EXPENSE)
Equity earnings of subsidiaries		-			(446,474	)		-			-			-			-			-			2,902,537			(2,456,063	)		-
Interest expense		(70,476	)		(140,988	)		(200,455	)		(243,407	)		(249,501	)		(331,784	)		(239,406	)		(876,239	)		-			(2,352,256	)
Management fee		(100,000	)		(150,000	)		(200,000	)		(150,000	)		(200,000	)		(150,000	)		(50,000	)		-			-			(1,000,000	)
Corporate expense allocation		(470,004	)		(525,000	)		(650,002	)		(525,000	)		(750,000	)		(525,000	)		(174,996	)		3,620,002			-			-
Miscellaneous income (expense), net		-			(7,600	)		50,000			-			301,180			55			-			-			-			343,635
Acquisition costs		-			-			-			-			(451,599	)		-			-			-			-			(451,599	)
Gain (loss) on disposal of assets, net		(15,393	)		14,873			(460	)		-			-			(78,085	)		-			-			980			(78,085	)
TOTAL OTHER INCOME (EXPENSE)		(655,873	)		(1,255,189	)		(1,000,917	)		(918,407	)		(1,349,920	)		(1,084,814	)		(464,402	)		5,646,300			(2,455,083	)		(3,538,305	)
INCOME (LOSS) BEFORE INCOME TAXES		(1,030,830	)		(622,605	)		(1,531,697	)		1,804,387			3,728,087			(406,791	)		(78,750	)		2,099,386			(2,446,157	)		1,515,030
INCOME TAX BENEFIT		(584,356	)		-			-			-			-			-			-			-			-			(584,356	)
NET INCOME (LOSS)		(446,474	)		(622,605	)		(1,531,697	)		1,804,387			3,728,087			(406,791	)		(78,750	)		2,099,386			(2,446,157	)		2,099,386
EQUITY, BEGINNING OF YEAR		9,765,165			10,194,988			13,767,382			4,557,082			10,076,917			7,682,999			3,273,958			44,060,621			(59,318,491	)		44,060,621
DISTRIBUTIONS TO MEMBERS		-			(9,318,691	)		-			-			-			-			-			(53,400	)		9,318,691			(53,400	)
EQUITY, END OF YEAR	$	9,318,691		$	253,692		$	12,235,685		$	6,361,469		$	13,805,004		$	7,276,208		$	3,195,208		$	46,106,607		$	(52,445,957	)	$	46,106,607

See Notes to Consolidated Financial Statements

- 34 -

VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF INCOME AND MEMBERS’ EQUITY

Year Ended December 31, 2010

							Cottonwood
	St. Louis			Lenexa			Falls			Fredonia			Washington			Wichita			Tulsa			Valent			Eliminations			Consolidated
NET SALES	$	6,222,901		$	10,304,964		$	24,292,864		$	9,741,111		$	18,643,946		$	13,866,318		$	2,105,110		$	-		$	(8,304,283	)	$	76,872,931
COST OF SALES		5,941,915			8,825,113			24,094,509			7,197,263			13,257,501			12,477,912			1,777,828			(386,371	)		(8,255,665	)		64,930,005
GROSS PROFIT		280,986			1,479,851			198,355			2,543,848			5,386,445			1,388,406			327,282			386,371			(48,618	)		11,942,926
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		23,599			1,147,340			129,549			268,285			979,386			1,515,147			198,195			822,592			-			5,084,093
AMORTIZATION OF INTANGIBLE ASSETS		736,212			427,853			1,160,035			477,011			764,754			188,765			286,371			-						4,041,001
OPERATING INCOME (LOSS)		(478,825	)		(95,342	)		(1,091,229	)		1,798,552			3,642,305			(315,506	)		(157,284	)		(436,221	)		(48,618	)		2,817,832
OTHER INCOME (EXPENSE)
Equity earnings of subsidiaries		-			(463,156	)		-			-			-			-			-			464,101			(945	)		-
Interest expense		(104,762	)		(420,165	)		-			(274,450	)		(253,531	)		(359,394	)		(232,404	)		(954,979	)		-			(2,599,685	)
Management fee		-			-			-			-			-			-			-			(1,000,000	)		-			(1,000,000	)
Corporate expense allocation		(159,496	)		212,023			(550,900	)		(215,627	)		(571,200	)		(114,240	)		(28,560	)		1,428,000			-			-
Miscellaneous income (expense), net		-			-			-			-			918			283			-			-			-			1,201
Acquisition costs		-			-			-			-			-			-			-			(2,027	)		-			(2,027	)
Gain (loss) on disposal of assets, net		-			1,000			627			-			-			-			-			-			-			1,627
TOTAL OTHER INCOME (EXPENSE)		(264,258	)		(670,298	)		(550,273	)		(490,077	)		(823,813	)		(473,351	)		(260,964	)		(64,905	)		(945	)		(3,598,884	)
INCOME (LOSS) BEFORE INCOME TAXES		(743,083	)		(765,640	)		(1,641,502	)		1,308,475			2,818,492			(788,857	)		(418,248	)		(501,126	)		(49,563	)		(781,052	)
INCOME TAX PROVISION		(279,926	)		-			-			-			-			-			-			-			-			(279,926	)
NET INCOME (LOSS)		(463,157	)		(765,640	)		(1,641,502	)		1,308,475			2,818,492			(788,857	)		(418,248	)		(501,126	)		(49,563	)		(501,126	)
EQUITY, BEGINNING OF YEAR		10,228,322			10,960,628			15,408,884			3,248,607			7,258,425			8,471,856			3,692,206			44,561,747			(59,268,928	)		44,561,747
EQUITY, END OF YEAR	$	9,765,165		$	10,194,988		$	13,767,382		$	4,557,082		$	10,076,917		$	7,682,999		$	3,273,958		$	44,060,621		$	(59,318,491	)	$	44,060,621

See Notes to Consolidated Financial Statements

- 35 -

VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Nine Months Ended September 30, 2012 and 2011

INDEPENDENT ACCOUNTANTS’ REVIEW REPORT

To the Members

VALENT AEROSTRUCTURES, LLC

We have reviewed the consolidated balance sheets of Valent Aerostructures, LLC and Subsidiaries (the Company) as of September 30, 2012 and 2011, and the related consolidated statements of income, members’ equity and cash flows for each of the nine-month periods then ended.  We have also reviewed the supplementary consolidating information as of and for the nine-month periods ending September 30, 2012 and 2011.   This financial information is the responsibility of the Company's management.

We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States, the objective of which is the expression of an opinion regarding the consolidated financial information taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the consolidated financial information referred to above for them to be in conformity with U.S. generally accepted accounting principles.

/s/ Mayer Hoffman McCann P.C.

Mayer Hoffman McCann P.C.

Leawood, Kansas

December 26, 2012

- 1 -

VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

September 30, 2012 and 2011

	2012			2011
A S S E T S
CURRENT ASSETS
Cash	$	325,871		$	33,725
Trade receivables, net		17,726,324			11,962,295
Inventories, net		33,376,753			20,904,175
Prepaid expenses and other current assets		1,043,185			640,246
Income tax receivable		9,160			-
Deferred tax asset		27,353			32,378
TOTAL CURRENT ASSETS		52,508,646			33,572,819
PROPERTY AND EQUIPMENT, net		48,911,551			26,427,072
OTHER ASSETS
Other assets		2,736,530			4,241,063
Deferred financing costs		552,920			222,964
Intangible assets, net		24,462,508			25,029,790
Goodwill		15,176,973			14,427,695
TOTAL OTHER ASSETS		42,928,931			43,921,512
TOTAL ASSETS	$	144,349,128		$	103,921,403
L I A B I L I T I E S
CURRENT LIABILITIES
Accounts payable	$	10,394,733		$	8,324,589
Accrued expenses and other liabilities		4,814,090			3,379,954
Deferred revenue		671,269			1,118,469
Line of credit		22,005,967			11,860,263
Current portion of long-term debt		21,777,843			20,878,671
TOTAL CURRENT LIABILITIES		59,663,902			45,561,946
TERM DEBT AND CAPITAL LEASE OBLIGATIONS, net of current portion		19,375,709			9,142,060
SUBORDINATED DEBT, net of current portion		359,581			719,163
DEFERRED TAX LIABILITY, net		2,083,237			2,541,350
OTHER LONG-TERM LIABILITIES		116,570			-
TOTAL LIABILITIES		81,598,999			57,964,519
E Q U I T Y
PREFERRED MEMBER UNITS
Members' contributions		8,200,000			-
Members' distributions		(411,123	)		-
COMMON MEMBER UNITS
Members' contributions		50,224,674			45,245,854
Members' distributions		(525,230	)		(525,230	)
MEMBERS' RETAINED EARNINGS		3,953,556			1,236,260
TOTAL MEMBERS' EQUITY		61,441,877			45,956,884
NONCONTROLLING INTEREST		1,308,252			-
TOTAL EQUITY		62,750,129			45,956,884
TOTAL LIABILITIES AND EQUITY	$	144,349,128		$	103,921,403

See Notes to Consolidated Financial Statements

- 2 -

VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

Nine Months Ended September 30, 2012 and 2011

	2012			2011
NET SALES	$	80,471,187		$	64,108,225
COST OF SALES		66,200,240			52,624,189
GROSS PROFIT		14,270,947			11,484,036
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		10,091,747			7,686,154
OPERATING INCOME		4,179,200			3,797,882
OTHER INCOME (EXPENSE), NET
Interest expense		(1,318,739	)		(1,641,099	)
Management fee		(795,833	)		(750,000	)
Miscellaneous income (expense), net		19,883			30,348
Loss on disposal of property and equipment, net		(914	)		(63,671	)
TOTAL OTHER INCOME (EXPENSE), NET		(2,095,603	)		(2,424,422	)
INCOME BEFORE INCOME TAXES		2,083,597			1,373,460
INCOME TAX BENEFIT		(392,228	)		(576,203	)
NET INCOME		2,475,825			1,949,663
NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST		(91,748	)		-
NET INCOME ATTRIBUTABLE TO VALENT AEROSTRUCTURES, LLC	$	2,567,573		$	1,949,663

See Notes to Consolidated Financial Statements

- 3 -

VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

Nine Months Ended September 30, 2012 and 2011

	Equity Attributable to Valent Aerostructures, LLC
	Preferred Member Units					Common Member Units					Members'
	Members'		Members'			Members'		Members'			Retained						Noncontrolling			Total
	Contributions		Distributions			Contributions		Distributions			Earnings			Total			Interest			Equity
Balance, December 31, 2010	$	-	$	-		$	45,245,854	$	(471,830	)	$	(713,403	)	$	44,060,621		$	-		$	44,060,621
Member distributions		-		-			-		(53,400	)		-			(53,400	)		-			(53,400	)
Net Income		-		-			-		-			1,949,663			1,949,663			-			1,949,663
Balance, September 30, 2011	$	-	$	-		$	45,245,854	$	(525,230	)	$	1,236,260		$	45,956,884		$	-		$	45,956,884
Balance, December 31, 2011	$	-	$	-		$	45,245,854	$	(525,230	)	$	1,385,983		$	46,106,607		$	-		$	46,106,607
Acquisition of Ozark Mountain Technologies, Inc.		-		-			-		-			-			-			1,400,000			1,400,000
Issuance of preferred member units		8,200,000		-			-		-			-			8,200,000			-			8,200,000
Issuance of member units		-		-			4,978,820		-			-			4,978,820			-			4,978,820
Preferred distributions		-		(411,123	)		-		-			-			(411,123	)		-			(411,123	)
Net Income (Loss)		-		-			-		-			2,567,573			2,567,573			(91,748	)		2,475,825
Balance, September 30, 2012	$	8,200,000	$	(411,123	)	$	50,224,674	$	(525,230	)	$	3,953,556		$	61,441,877		$	1,308,252		$	62,750,129

See Notes to Consolidated Financial Statements

- 4 -

VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

Nine Months Ended September 30, 2012 and 2011

	2012			2011
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	2,475,825		$	1,949,663
Adjustments to reconcile net income to net cash flows from operating activities
Depreciation of property and equipment		3,996,936			2,597,919
Amortization of pre-production costs		160,092			128,104
Amortization of intangible assets		2,895,493			2,996,348
Amortization of deferred financing costs		71,710			46,636
Change in fair value of derivative instrument		116,570			-
Deferred income tax (benefit) obligation		(383,068	)		(304,825	)
Loss on disposal of property and equipment		914			63,671
Net change in operating assets and liabilities
Trade receivables		(4,123,423	)		(2,295,112	)
Inventories		(10,110,268	)		298,881
Prepaid expenses and other current assets		33,544			(58,405	)
Accounts payable		(2,271,385	)		2,103,232
Accrued expenses and other liabilities		1,845,284			1,215,750
Deferred revenue		(153,420	)		(42,317	)
NET CASH FLOWS FROM (USED BY)OPERATING ACTIVITIES		(5,445,196	)		8,699,545
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for Ozark Mountain Technologies, Inc.,net  of cash acquired		(10,387,747	)		-
Purchase of property and equipment		(4,968,794	)		(5,980,944	)
Proceeds from the sale of property and equipment		-			397,757
Payment of pre-production costs		(216,275	)		(65,895	)
Reimbursement of pre-production costs		-			-
NET CASH FLOWS USED BY INVESTING ACTIVITIES		(15,572,816	)		(5,649,082	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (payments) on line of credit		8,802,142			2,323,824
Repayment of debt		(2,276,143	)		(7,601,499	)
Repayment of bond obligations		(234,434	)		(247,838	)
Repayment of Subordinated Note #1		(4,712,617	)		(357,142	)
Repayment of Subordinated Note #2		(359,582	)		(179,791	)
Proceeds from issuance of debt		5,552,764			2,975,179
Repayment of capital lease obligations		(135,642	)		-
Proceeds from issuance of preferred member units		8,200,000			-
Proceeds of issuance member units		4,978,820			-
Payment of deferred financing costs		(278,378	)		(87,396	)
Distributions to members		(411,123	)		(53,400	)
NET CASH FLOWS FROM (USED BY)FINANCING ACTIVITIES		19,125,807			(3,228,063	)
NET CHANGE IN CASH		(1,892,205	)		(177,600	)
CASH, BEGINNING OF PERIOD		2,218,076			211,325
CASH, END OF PERIOD	$	325,871		$	33,725

See Notes to Consolidated Financial Statements

- 5 -

VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

Nine Months Ended September 30, 2012 and 2011

The following is a summary of supplemental cash flow information:

	2012		2011
Cash paid for:
Interest, net of amounts capitalized	$	1,247,029	$	1,594,463
Income taxes	$	-	$	386,361
Noncash investing and financing activities:
Financing of property and equipment with bond proceeds	$	1,154,781	$	4,020,316
Property and equipment financed by capital lease	$	8,868,833	$	784,046

See Notes to Consolidated Financial Statements

- 6 -

VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(1) Summary of significant accounting policies

Principles of consolidation and nature of operations - Valent Aerostructures, LLC (Valent) is a parent holding company of the following wholly owned subsidiaries whose accounts are included in the accompanying consolidated financial statements:

● Valent Aerostructures - Washington, LLC (Washington), a subsidiary of Valent: Washington (Missouri) is a manufacturer of production parts, tooling, and commercial and military aircraft components. The parts and tooling are precision machined and/or manufactured to the customer’s drawings and the work is performed under fixed-priced contracts.

● Valent Aerostructures - Wichita, LLC (Wichita), a subsidiary of Valent: Wichita (Kansas) is a manufacturer of production parts, tooling, and commercial and military aircraft components. The parts and tooling are precision machined and/or manufactured to the customer’s drawings and the work is performed under fixed-priced contracts.

● Valent Aerostructures - Tulsa, LLC (Tulsa), a subsidiary of Valent: Tulsa (Oklahoma) is a manufacturer of production parts, tooling, and commercial and military aircraft components. The parts and tooling are precision machined and/or manufactured to the customer’s drawings and the work is performed under fixed-priced contracts.

● Valent Aerostructures - St. Louis, Inc. (St. Louis), a subsidiary of Valent: St. Louis (Missouri) is a manufacturer of production parts, tooling, and commercial and military aircraft components. The parts and tooling are precision machined and/or manufactured to the customer’s drawings and the work is performed under fixed-priced contracts.

● Valent Aerostructures - Lenexa, LLC (Lenexa), a subsidiary of Valent: Lenexa (Kansas) is a contract manufacturer of electronic and electrical wire harnesses, cable assemblies and mechanical sub-assemblies for air and rail traffic control, medical equipment, telecommunications, and heavy equipment industries.

● Valent Aerostructures - Cottonwood Falls (Cottonwood Falls), a division of Lenexa: Cottonwood Falls (Kansas) specializes in the assembly of major and minor component parts for the commercial aerospace market.

● Valent Aerostructures - Fredonia (Fredonia), a division of Lenexa: Fredonia (Kansas) is a manufacturer of production parts, tooling, and commercial and military aircraft components. The parts and tooling are precision machined and/or manufactured to the customer’s drawings and the work is performed under fixed-priced contracts.

● Ozark Mountain Technologies, LLC (Cuba), a subsidiary of Valent: Cuba (Missouri) specializes in metal finishing services and was acquired by the Company in April 2012 (80% interest), see note 13.  The results of operations are included in the consolidated financial statements beginning on the acquisition date.

These entities are collectively referred to as the Companies.  All significant intercompany balances and transactions have been eliminated.

- 7 -

VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(1) Summary of significant accounting policies (continued)

Use of estimates - The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  Significant estimates used in preparing the consolidated financial statements include estimated costs to complete fixed-price contracts accounted for under the unit of delivery method, capitalized pre-production costs, estimated lives of property and equipment and intangible assets, allowance for doubtful accounts, and reserve for inventory obsolescence.  Actual results could differ from these estimates.

Revenue recognition - Certain of the Companies’ revenues relating to commercial aircraft components are recognized under long-term, fixed price contracts, requiring delivery of units over several years.  For these contracts, the Companies recognize revenue under the contract method of accounting and record sales in accordance with the units of delivery method.  The Companies follow the requirements of Accounting Standards Codification (ASC) Topic 605-35, Accounting for Construction-Type and Production-Type Contracts, using the cumulative catch-up method in accounting for revisions in estimates. Under the cumulative catch-up method, the impact of revisions in estimates is recognized immediately when changes in estimated contract profitability become known.

A margin percentage is estimated based on the difference between total expected revenues and total estimated costs of a contract.  Total revenues at any given time include actual historical revenues up to that time plus future estimated revenues. Total costs at any given time include actual historical costs up to that time plus future estimated costs.  Estimated revenues include negotiated or expected values for units delivered, estimates of probable recoveries asserted against the customer for changes in specifications, and price adjustments for contract changes. Costs include the estimated cost of certain pre-production effort (including non-recurring engineering and planning subsequent to completion of final design) plus the estimated cost of manufacturing the specified number of production units.  Estimates take into account assumptions relative to future labor performance and rates, and projections relative to material and overhead costs including expected “learning curve” cost reductions over the term of the contract.  The specified number of production units used to establish the profit margin is predicated upon contractual terms and customer production forecasts.  The assumed period covered is generally equal to the period specified in the contract or the future period for which the Companies can project reasonably dependable cost estimates.  Estimated revenues and costs also take into account any rebates or discounts offered and the expected impact of specific contingencies that the Companies believe are probable, if any.

Estimates of revenues and costs for the contracts span a period of multiple years and are based on a substantial number of underlying assumptions.  The Companies believe the underlying assumptions are sufficiently reliable to provide a reasonable estimate of the margin percentage. However, due to the significant length of time over which revenue streams will be generated, the variability of the revenue and cost streams can be significant if the assumptions change.

- 8 -

VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(1) Summary of significant accounting policies (continued)

Revenue recognition (continued) -The Company has entered into Vendor Owned Inventory (VOI) arrangements that cover certain products sold to a significant customer. Pursuant to those arrangements, the Company will hold title to the products subsequent to delivery and until they are used by the customer.  The Company has determined that because substantially all risks and rewards of product ownership have not passed to the customer upon delivery, including title, the Company does not recognize revenue relating to these products until utilized by the customer.

For revenues not recognized under the contract method of accounting or those related to the VOI arrangements, the Company recognizes revenues at the time both title and risk of ownership are transferred to the customer, which is generally at the time of shipment.  Revenues are recorded net of returns and discounts.  Shipping and handling costs are included in cost of sales.  Fees received in advance of order completion and shipment are included in deferred revenue until earned.

Income taxes - With the exception of St. Louis, the Companies are organized as limited liability companies whereby the members of the Companies are taxed under the partnership provisions of the Internal Revenue Code.  Under these provisions, the limited liability companies do not pay income taxes on their taxable income, nor are they allowed a net operating loss carryforward or carryback as a deduction.  Instead, the members are individually liable for income tax on the limited liability companies’ taxable income or loss.

St. Louis is taxed as a C-Corporation under the Internal Revenue Code.  St. Louis’s provision for income taxes is computed using the asset and liability method, as prescribed by ASC Topic, Income Taxes, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities.

No significant uncertain tax positions have been identified, therefore the Companies have not recognized any uncertain tax positions. The Companies file income tax returns in the U.S. federal jurisdiction and various state jurisdictions.  The Companies are no longer subject to U.S. federal, or state and local income tax examinations by tax authorities for years before 2008.

Cash - Cash consists of bank demand deposits.  At times during the year, the Companies’ cash balances in certain accounts may have exceeded the Federal Deposit Insurance Corporation (FDIC) limits.  Non-interest bearing transaction accounts are temporarily not subject to the FDIC limits and are fully insured as of September 30, 2011 and through September 30, 2012. The Companies monitor the financial strength of their banks and feel the risk of loss is remote.

Trade receivables - The Companies grant credit to their customers and generally do not require collateral to secure payment of accounts receivable.  Accounts receivable are carried at cost, less an allowance for doubtful accounts, and do not accrue any finance or interest charges.  Management routinely reviews accounts receivable and an allowance for doubtful accounts is provided when amounts are determined to be uncollectible.  An account is written off after all collection efforts have been exhausted.  The allowance for doubtful accounts was approximately $54,700 and $41,200 at September 30, 2012 and 2011, respectively.

- 9 -

VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(1) Summary of significant accounting policies (continued)

Inventories - Raw materials, work-in-process, and finished goods that do not relate to long-term, fixed price contracts, including inventory subject to the VOI arrangements, are stated at the lower of cost, determined on the first-in, first-out (FIFO) method, or market.  Market is based upon realizable value less normal gross profit.

Inventoried costs attributed to units delivered under long-term contracts are based on the estimated average cost of all units expected to be produced and are determined under the learning curve concept which anticipates a predictable decrease in unit costs as tasks and production techniques become more efficient through repetition.  This usually results in an increase in inventory (referred to as “excess-over-average” or “deferred production costs”) during the early years of a contract.  These costs are deferred only to the extent the amount of actual or expected excess-over-average is reasonably expected to be fully offset by lower-than-average costs in future periods of a contract.  If in-process inventory plus estimated costs to complete a specific contract exceed the anticipated remaining estimated revenue of such contract, the loss is recognized immediately through a charge to cost of sales in the period the loss becomes known, thus reducing inventory to estimated realizable value.

Property and equipment - Property and equipment are recorded at cost.  Depreciation is computed using the straight-line method over the following estimated useful lives:

Assets	Estimated Useful Lives
Buildings	20 – 40 years
Furniture and fixtures	5 – 7 years
Machinery and equipment	3 – 7 years
Computer equipment and software	3 – 7 years
Tooling	3 – 7 years
Vehicles and transportation equipment	5 – 7 years
Leasehold improvements	7 – 39 years

Leasehold improvements are depreciated over the related lease term or estimated useful lives of the improvements, whichever is shorter.  Major replacements and betterments are capitalized while maintenance and repairs are charged to expense.

Deferred financing costs - Deferred financing costs, which represent fees and other costs incurred in connection with obtaining debt, are amortized using the effective-interest method over the term of the corresponding note and are included in interest expense.  Amortization of deferred financing costs for the nine months ended September 30, 2012 and 2011 was $71,710 and $46,636, respectively.

- 10 -

VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(1) Summary of significant accounting policies (continued)

Goodwill - Goodwill represents the excess cost over fair value of net assets acquired through acquisitions.  In accordance with the provisions of ASC Topic, Intangibles - Goodwill and Other, goodwill is assessed annually for impairment. If considered impaired, goodwill is to be written down to implied fair value and a corresponding impairment loss recognized.  The Companies perform step one of the goodwill impairment analysis by comparing the estimated fair value of the Companies’ single reportable unit to its carrying amount.  Based on the Companies’ last valuations performed by an independent third party as of December 31, 2011, the fair value of the single reportable unit exceeded its carrying amount.  Therefore, management determined that no impairment loss attributable to goodwill of the single reportable unit had occurred during the nine months ended September 30, 2012 and 2011.

Intangible assets - Intangible assets consist of customer relationships, non-compete agreements, engineering drawings, and backlog from previous acquisitions.  Customer relationships and engineering drawings are amortized on a straight-line basis over their estimated economic benefit period of 10.5 to 15 years.  Non-compete agreements and backlog are being amortized on a straight-line basis over their estimated economic benefit period, generally from two to five years.

Impairment of long-lived assets - The Companies assess the impairment of long-lived assets, which include property and equipment and intangible assets, whenever events or changes in circumstances indicate that such assets might be impaired and the carrying value may not be recoverable.  No impairment loss attributable to long-lived assets was recognized for the nine months ended September 30, 2012 and 2011.

(2) Inventories, net

Inventories consisted of the following at September 30:

	2012			2011
Raw materials	$	10,475,909		$	8,572,514
Work-in-process		14,378,895			6,785,662
Finished goods		9,263,694			6,067,938
Reserve for obsolescence		(741,745	)		(521,939	)
Total inventories	$	33,376,753		$	20,904,175

At September 30, 2012 and 2011, work-in-process inventory included $5,078,989 and  $1,530,079, respectively, of deferred production costs and capitalized pre-production costs.

- 11 -

VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(3) Property and equipment, net

Property and equipment consisted of the following at September 30:

	2012			2011
Land	$	1,287,081		$	887,081
Buildings		17,107,211			4,324,587
Machinery and equipment		35,152,855			16,959,684
Furniture and fixtures		861,130			623,869
Computer equipment and software		2,013,680			1,495,881
Tooling		1,823,934			1,231,154
Vehicles and transportation equipment		489,922			245,604
Leasehold improvements		639,935			467,418
Construction in progress		4,060,507			9,500,533
Total cost		63,436,255			35,735,811
Accumulated depreciation and amortization		(14,524,704	)		(9,308,739	)
Net property and equipment	$	48,911,551		$	26,427,072

The aggregate depreciation and amortization charged to operations for the nine months ended September 30, 2012 and 2011 was $3,996,936 and $2,597,919, respectively.

(4) Pre-production costs

The Company accounts for pre-production costs in accordance with ASC Topic, Other Assets and Deferred Costs. These costs are amortized over the life of the related contract in proportion to the units produced and are recorded in other assets in the accompanying consolidated balance sheet.

Pre-production costs consisted of the following as of and for the nine-months ended  September 30:

	2012			2011
Pre-production costs, beginning of year	$	610,490		$	803,760
Costs capitalized		216,275			65,895
Costs reimbursed		-			(114,617	)
Amortization		(160,092	)		(128,104	)
Pre-production costs, nine months ended	$	666,673		$	626,934

- 12 -

VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(5) Other Assets

Other assets consisted of the following at September 30:

	2012		2011
Pre-production costs	$	666,673	$	626,934
Refundable tax credit		214,455		-
Unspent bond proceeds		-		1,750,759
Missouri Development Finance Board bonds		1,575,450		1,683,850
Other		279,952		179,520
Net property and equipment	$	2,736,530	$	4,241,063

(6) Intangible assets, net

Intangible assets consisted of the following at September 30:

	2012
	Gross Carrying Amount			Accumulated Amourtization
Finite lived intangible assets
Customer relationships		$	24,439,570		$	(6,726,772	)
Engineering drawings			6,591,156			(2,432,344	)
Non-compete agreements			3,002,985			(2,452,804	)
Other			3,883,389			(1,842,672	)
Total finite lived intangible assets		$	37,917,100		$	(13,454,592	)

	2011
	Gross Carrying Amount			Accumulated Amourtization
Finite lived intangible assets
Customer relationships		$	23,673,570		$	(4,536,660	)
Engineering drawings			5,423,156			(1,314,442	)
Non-compete agreements			3,946,985			(2,343,789	)
Other			1,628,389			(1,447,419	)
Total finite lived intangible assets		$	34,672,100		$	(9,642,310	)

The aggregate amortization charged to operations for the nine months ended September 30, 2012 and 2011 was $2,895,493 and $2,996,348, respectively.

- 13 -

VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(6) Intangible assets, net (continued)

The aggregate amortization expense for the definite lived intangible assets for the next five years and thereafter is as follows:

Twelve Months Ending September 30,
2013	$	3,820,372
2014		3,436,799
2015		3,436,799
2016		3,201,432
2017		2,929,751
Thereafter		7,637,355
Total	$	24,462,508

(7) Line of credit

In February 2011, the Company renewed their line of credit, providing for maximum borrowings equal to the greater of $19,000,000 or the amount allowable under borrowing base restrictions.

In December 2011, the Companies refinanced the line of credit with a syndicated group of creditors which provides for maximum borrowings equal to the greater of $25,000,000 or the amount allowable under borrowing base restrictions.

In August 2012, the Company executed an amendment to its existing line of credit which increased the maximum borrowings to $35,000,000. The maximum amount allowable under the borrowing base restrictions at September 30, 2012 was approximately $26,405,861. The Companies’ outstanding borrowings under the line of credit totaled $22,005,967.  The line of credit bears interest at either a base rate or LIBOR rate, both of which may vary depending on the Companies’ leverage ratio. The applicable rate is defined as the Adjusted Daily LIBOR rate as defined plus the applicable margin which was 2.50% at September 30, 2012.  The interest rate was 2.71% at September 30, 2012. The line of credit expires on December 15, 2014 and is collateralized by all assets of the Companies.

The line of credit contains certain operating and financial covenants including funded debt to earnings.  As of September 30, 2012 and 2011, the Company was in violation of its debt covenants.  As a result, all financial institution debt with the associated financial institution is classified as current debt.

- 14 -

VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(8) Debt

Debt consists of the following:

Revenue Bonds – Revenue Bonds issued by the City of Washington, Missouri (City) were used to finance the development of a property that was built to suit the Company.  The Company has entered into a lease agreement with the City with payments designed to meet the outstanding bond obligations.  Monthly principal and interest payments of approximately $32,000 are due through February 2013.  Monthly principal and interest payments of $55,200 are due from March 2013 through September 2020, at which time the remaining principal balance is due.  The Bonds bear interest at a floating rate as defined in the bond indenture (2.8% as of September 30, 2012).

Missouri Development Finance Board (MDFB) Loan – Loan due to the MDFB bears interest at rate of 5% per annum and is due in semi-annual principal and interest payments.  Scheduled principal payments ranging between $45,000 and $95,000 are due through final maturity in February 2023.

Term Loan #1 – As of September 30, 2011, the Company had a term loan due to a financial institution with a variable interest rate (5% as of September 30, 2011).

Term Loan #2 – As of September 30, 2011, the Company had a term loan due to a financial institution with a variable interest rate (5% as of September 30, 2011).

In December 2011, the Company refinanced Term Loan #1 and Term Loan #2 (hereinafter referred to as Term Loan #3) with a syndicated group of creditors which provides for borrowings of $17,000,000. Term Loan #3 is payable in equal quarterly principal installments of $708,333, commencing on March 15, 2012. In addition, 120 days after year-end (commencing December 31, 2012), the Company agreed to make additional principal payments in an amount equal to 50% of excess cash flow, as defined. In April 2012, Term Loan #3 was increased by $3,000,000.  Term Loan #3 bears interest at a LIBOR rate equal to the daily adjusted LIBOR rate plus applicable margin, which varies depending on the Company’s leverage ratio. The applicable margin was 2.50% at September 30, 2012.  The interest rate was 2.71% at September 30, 2012. Term Loan #3 expires on December 15, 2014 and is collateralized by all assets of the Company.

Term Loan #3 contains similar operating and financial covenants as the restructured line of credit above for which the Company was not in compliance with at September 30, 2012 and 2011, and as such, the outstanding balance is classified as current in the accompanying consolidated balance sheet.

Capital Expenditure Draw Loan – In February 2011, the Company obtained a capital expenditure draw loan (the Draw Loan) from a financial institution with a maximum amount available of $2,000,000.  The Company may take periodic advances on the Draw Loan between February 10, 2011 and February 10, 2013 at which time monthly principal payments will be due through February 10, 2014 based outstanding balance.  The Draw Loan bears interest at a rate equal to the monthly LIBOR rate plus a margin of 4.5% and is payable monthly.  The interest rate margin may be reduced to 4% upon the occurrence of certain events.

- 15 -

VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(8) Debt (continued)

In December 2011, the Company restructured the Draw Loan with a new financial institution.  The Company’s Draw Loan is structured under the same syndicated instrument and provides for one time borrowings not to exceed $2,000,000. The Company may take periodic advances on the Draw Loan solely for the purpose of purchasing new equipment. The Draw Loan is payable the twelfth month following the date of funding and every third calendar month up to and including November 2014 in the amount of 1/36th of the Funded Principal Amount and the total outstanding balance is due and payable on December 15, 2014.  The Draw Loan bears interest at either a base rate or LIBOR rate equal to the applicable rate plus the applicable margin, which varies depending on the Company’s leverage ratio.

The Draw Loan contains similar operating and financial covenants as the restructured line of credit above for which the Company was not in compliance with at September 30, 2012 and 2011, and as such, the outstanding balance is classified as current in the accompanying consolidated balance sheet.

In September 2012, the Company obtained a loan (the Equipment Loan) for up to $10,000,000 with interest at a fixed rate of 3.21% per annum from a bank pursuant to a master loan agreement to finance certain equipment purchased by the Company.  The Equipment Loan had a balance of $2,247,966 at September 30, 2012 and is due in 84 monthly principal and interest payments of $29,916 beginning on October 1, 2012.

Debt consisted of the following as of September 30:

	2012		2011
Revenue Bonds		7,723,947		7,891,322
Missouri Development Finance Board Loan		1,575,450		1,683,850
Term Loan #1		-		13,541,667
Term Loan #2		-		1,474,845
Term Loan #3		17,723,857		-
Draw Loan		511,998		-
Equipment Loan		2,040,766		-
Total debt		29,576,018		24,591,684
Less current portion		20,881,375		15,449,329
Noncurrent portion	$	8,694,643	$	9,142,355

Maturities of debt are as follows:

Twelve Months Ending September 30,
2013	$	20,881,375
2014		732,326
2015		744,905
2016		757,887
2017		771,606
Thereafter		5,687,919
Total debt	$	29,576,018

- 16 -

VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(9) Subordinated debt

Subordinated debt consists of the following:

Subordinated Note #1 – As of September 30, 2011, the Company had a subordinated note payable to a member of the Company which is secured by substantially all assets of the Company.  As of December 31, 2010, and on each subsequent June 30 and December 31 prior to and including December 31, 2013, installments of $357,143 plus interest were required and the entire outstanding principal and interest was due on December 31, 2013.  The note required that the Company remains in compliance with the senior debt covenants and as the Company was not in compliance at September 30, 2011, the balance has been classified as current at September 30, 2011. This note was paid in full in March 2012, as further discussed in note 10.

Subordinated Note #2 – The Company has a loan payable to the seller of Tulsa which is subordinated to the prior payment in full of all senior debt and is secured by substantially all of the assets of Tulsa.  The Seller Note is payable in semi-annual principal payments of $179,791. Interest is payable in semi-annual installments at prime (3.25% as of September 30, 2012 and 2011). The Company may make prepayments of principal if certain quarterly sales targets are met in accordance with the provisions of the Seller Note.  The Seller Note matures on July 31, 2013.

Subordinated debt consisted of the following as of September 30:

	2012		2011
Subordinated Note #1	$	-	$	5,069,760
Subordinated Note #2		719,163		1,078,745
Total subordinated debt		719,163		6,148,505
Less current portion		359,582		5,429,342
Noncurrent portion	$	359,581	$	719,163

The subordinated debt is due in annual installments of $359,582 during 2013 and 2014.

(10) Derivative Financial Instrument

In January 2012, the Company entered into an interest rate swap agreement designed to fix the variable rate portion of interest on Term Loan #3 at .81%, such that the effective interest rate, including the current applicable margin of 2.5%, is 3.31%. The forward starting swap begins in February 2013 and expires in November 2014 and is designed so that the notional amount of $14,166,668 is reduced as scheduled principal payments are made on the debt.  The fair value of the interest rate swap of $116,570 is included in other long-term liabilities on the consolidated balance sheet as of September 30, 2012.  The Company has not designated the interest rate swap as a hedging instrument in accordance with ASC Topic 815, Derivatives and Hedging, thus, changes in the fair value of the interest rate swap are included in interest expense on the statement of income.

- 17 -

VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(11)    Capital lease

In September 2011, the Company entered into a financing arrangement that provides the Company with up to $4,500,000 in funding through the use of industrial development revenue bonds issued by the City of Washington, Missouri.  Pursuant to the arrangements, the Company may acquire equipment for its production facility in the City of Washington.  Following acquisition, the Company may sell and lease back such property and equipment to the City of Washington.  The financing and associated property and equipment obtained under these arrangements are recorded as capital leases.

To the extent the Company does not utilize the maximum amount available by March 1, 2013, it will incur a prepayment fee as set forth in the lease agreement. During 2011, the Company acquired assets totaling $2,484,761 under these arrangements.  During 2012, the Company acquired assets up to the maximum $4,500,000 of funding available.

In April 2012, the Company entered into a lease agreement with the City of Fredonia, Kansas (City of Fredonia) for the lease of property and improvements in the City of Fredonia.  Monthly payments were due beginning on May 1, 2012 through April 1, 2032 in an amount sufficient to service the total principal and interest on the underlying Industrial Revenue Bonds Series 2012A issued by the City of Fredonia in the amount of $2,184,726.

In June 2012, the Company entered into a lease agreement with the City of Fredonia for the lease of equipment.  Monthly payments were due beginning on June 27, 2012 through July 1, 2021 in an amount sufficient to service the total principal and interest on the underlying Industrial Development Revenue Bonds Series 2012B issued by the City of Fredonia in the amount of $3,060,000.  Through September 30, 2012, the Company had acquired assets totaling $2,856,224 under these arrangements and anticipates utilizing the full amount available under the lease arrangement for the purchase of equipment.

In September 2012, the Company entered into a lease agreement with the City of Washington for the lease of equipment.  Monthly payments are due beginning on November 1, 2012 through October 1, 2022 in an amount sufficient to service the total principal and interest on the underlying Taxable Industrial Development Revenue Bonds Series 2012 issued by the City of Washington in the amount of $4,500,000. Through September 30, 2012, the Company had acquired assets totaling $1,802,431 under these arrangements and anticipates utilizing the full amount available under the lease arrangement for the purchase of equipment.

- 18 -

VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(11)    Capital lease (continued)

The future minimum lease payments required under the capital lease and the present value of the net minimum lease payments as of September 30, 2012, are as follows:

Twelve Months Ending September 30,
		-
2013	$	1,090,548
2014		1,292,111
2015		1,477,111
2016		1,762,611
2017		1,778,111
Thereafter		7,041,086
Total minimum lease payments		14,441,578
Less amount representing interest		3,223,626
Present value of minimum lease payments		11,217,952
Less current portion of capital lease obligation		536,886
		-
Long-term capital lease obligation	$	10,681,066

The assets recorded under the capital lease and included in property and equipment consist of the following at September 30, 2012:

	2012
Cost of equipment under capital leases	$	10,633,622
Less accumulated depreciation		(842,323	)
Total net book value of assets under capital lease	$	9,791,299

(12) Members’ equity

In March 2012, a member of the Company acquired 55,511 units of the Company for $4,628,820. The proceeds of the capital contribution were used to repay amounts due under Subordinated Note #1, as discussed in note 9.

Also in March 2012, the Company issued 98,340 Class A Convertible Senior Preferred Units (the Preferred Units) of the Company for $8,200,000.  Such securities yield a 10% preferred return and each Preferred Unit may be converted to one common unit at any time after January 1, 2015 or earlier upon a change of control.  The Preferred Units may be redeemed at any time by the Company upon approval of the Company’s management committee at an amount equal to the acquisition price ($8,200,000) plus any unpaid preferred return.  Additionally, the Preferred Units have a liquidation preference over other member units.

- 19 -

VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(13) Acquisition

In April 2012, the Company acquired an 80% interest in certain assets and liabilities of Ozark Mountain Technologies Inc, (OMTI) a metal finishing services facility located in Cuba, Missouri.  The acquisition was structured such that the acquired assets and assumed liabilities from OMTI were contributed to a newly formed subsidiary of Valent, Ozark Mountain Technologies, LLC (OMT), for which Valent then assigned a 20% interest in OMT to the seller.  As a result of the transaction, Valent holds 80% of the outstanding units of OMT, and has included the assets and obligations and the results of the operations of OMT in the consolidated financial statements as of the date of the acquisition through September 30, 2012.  Consideration paid in connection with the transaction was cash of $10,123,706, resulting in goodwill of $749,278.

The fair value of the acquired assets and assumed liabilities on the date of acquisitions were as follows:

Assets acquired:
Accounts receivable	$	1,100,000
Inventories		300,000
Land		400,000
Equipment		3,275,250
Building		3,000,000
Intangible assets:
Non-compete		224,000
Certifications		1,883,000
Tradename and other		372,000
Customer relationships		766,000
Liabilities assumed:
Accounts payable		(545,822	)
Noncontrolling interest		(1,400,000	)
Net assets acquired	$	9,374,428

The acquisition has been accounted for using the acquisition method, whereby the underlying assets and liabilities are recorded at their fair values.    Management determined the fair values of the acquired assets and assumed liabilities based on independent third party appraisals.

- 20 -

VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(14) Operating leases

The Company operates certain of its production facilities in leased facilities and maintains a portion of their equipment under non-cancelable operating lease agreements having initial terms of more than one year and expiring at various dates through 2022.

The future minimum rental payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year are as follows:

Twelve Months Ending September 30,
2013	$	342,100
2014		247,700
2015		141,500
2016		141,500
2017		110,000
Thereafter		18,700
Total	$	1,001,500

Rent expense under these operating leases was $383,176 and $387,196 for the nine months ended September 30, 2012 and 2011, respectively.

(15)  Missouri Development Finance Board

In December 2010, the Company acquired Series 2010 Missouri Development Finance Board BUILD Bonds (Bonds) in the amount of approximately $1,800,000 using proceeds obtained from a loan from the Missouri Development Finance Board for approximately the same amount. The Company will receive semi-annual payments of principal and interest at 5% per annum on the bonds in amounts that are equal to the semi-annual principal and interest payments due on the loan.  Loan interest is also 5% per annum.  The Bonds and associated loan are scheduled to be repaid in February 2023.  The balance outstanding under the Bonds and the loan were approximately $1,700,000 as of December 31, 2011. The balance of the investment in the Bonds is presented gross and included in other assets and the loan in long-term debt in the accompanying consolidated balance sheets.

Pursuant to the Build Missouri Program Agreement dated December 2010, to the extent the Company achieves certain employment objectives, the Company expects to receive a refundable credit to their Missouri income tax of an amount equal to principal and interest payments made under the terms of the above loan.  Such credits will be recorded as a reduction to rent expense in the year loan payments are made if employment objectives are met during that year.  A refundable credit of $214,455 and $188,047 has been recorded in other assets for the nine months ended September 30, 2012 and 2011, respectively.

- 21 -

VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(16) Retirement and profit sharing plans

The Company participates in 401(k) and Simple IRA plans qualified under section 401(k) of the Internal Revenue Code.  Essentially, all full-time employees are eligible to participate in the plans.  Participants may elect to have a portion of their salary contributed to the respective plans within certain limits.  Under the plans, each of the Company may contribute a discretionary matching contribution equal to a uniform percentage of the participant’s compensation contributed to the applicable plan.  The exact percentage, if any, will be determined each year and shall not exceed 3% of a participant’s compensation for the year.  The Company made contributions of $366,800 and $338,227 during the nine months ended September 30, 2012 and 2011, respectively.

(17) Concentrations

For the nine months ended September 30, 2012 and 2011, approximately 32% and 31%, respectively, of the Company’s sales were to four customers.  Trade accounts receivable for these customers were approximately 70% and 82% of the total outstanding amounts as of September 30, 2012 and 2011, respectively.

(18)  Related party transactions

The Company incurred management fees to certain members of the Company or their affiliates for consulting services pursuant to management consulting agreements in the amount of $795,833 for each of the nine months ended September 30, 2012 and 2011.

Washington leased equipment from a related party under common ownership for $58,000 during the nine months ended September 30, 2011.

(19)  Income taxes

St. Louis provides for current and deferred income taxes to reflect the impact of temporary differences between the recorded amounts of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws and regulations.

Income tax benefit during the nine months ended September 30, was computed as follows:

	2012		2011
Current income tax benefit
Federal and state income taxes	$	223,003	$	211,346
Deferred income tax benefit		169,225		364,857
Total income tax benefit	$	392,228	$	576,203

- 22 -

VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(19)  Income taxes (continued)

The significant temporary differences and the related deferred tax assets and liabilities as of September 30 are as follows:

	2012			2011
Deferred tax liabilities
Inventory	$	27,353		$	32,378
Non-compete agreement		(1,956,318	)		(2,211,570	)
NOL carryback		213,843			-
Property and equipment		(340,762	)		(329,780	)
Total deferred income taxes	$	(2,055,884	)	$	(2,508,972	)
Current liabilities	$	27,353		$	32,378
Net non-current liabilities		(2,083,237	)		(2,541,350	)
Total deferred taxes	$	(2,055,884	)	$	(2,508,972	)

(20)  Contingencies, risks and uncertainties

As a contract manufacturer of precision components, the Company currently fabricates precision components and assemblies to customer specifications, primarily for the aerospace industry.  The Company is subject to various risks and uncertainties relating to future operating results, liquidity and financial condition that could cause actual results to differ from the estimates made in the Company’s financial statements.  Such risks and uncertainties include the profitably of the commercial airline industry, significant customers, labor and commodity markets, and the Company’s ability to maintain financing.

(21)  Subsequent events

The Company has evaluated subsequent events through December 26, 2012, the date which the consolidated financial statements are available to be issued.  Except as noted below, no issues were identified for adjustment to, or disclosure in, notes to the consolidated financial statements.

In December 2012, the Company acquired the remaining 20% interest in OMT from the noncontrolling interest for a $2,500,000.  The agreement was entered into in contemplation of the sale of the outstanding shares of the Company to LMI Aerospace, Inc.   Terms of the purchase price include $500,000 payable at closing, with the remaining $2,000,000 due in 36 equal installments.

In December 2012, the Company executed a Membership Interest Purchase Agreement with LMI whereby LMI agreed to acquire all the issued and outstanding equity interests of the Company for an initial consideration of $237,000,000, less approximately $12,573,000 which will be used to repay all principal outstanding for Industrial Revenue Bond obligations with the cities of Fredonia, Kansas and Washington, Missouri.

- 23 -

SUPPLEMENTARY INFORMATION

VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

CONSOLIDATING BALANCE SHEETS (UNAUDITED)

September 30, 2012

							Cottonwood
	St. Louis			Lenexa			Falls			Fredonia		Washington			Wichita			Tulsa			Cuba			Valent			Eliminations			Consolidated
A S S E T S
CURRENT ASSETS
Cash	$	704		$	147		$	359		$	321	$	(48	)	$	1,631		$	802		$	3,770		$	318,185		$	-		$	325,871
Trade receivables, net		805,893			661,827			6,671,200			2,335,689		5,026,216			3,674,319			576,010			1,243,462			345,792			(3,614,084	)		17,726,324
Inventories, net		2,742,877			1,917,519			7,739,734			3,479,310		10,397,659			5,639,232			631,830			203,472			1,036,000			(410,880	)		33,376,753
Prepaid expenses and other current assets		119,230			18,885			4,200			13,875		546,761			12,940			5,895			28,628			292,771			-			1,043,185
Income tax receivable		9,160			-			-			-		-			-			-			-			-			-			9,160
Deferred tax asset		27,353			-			-			-		-			-			-			-			-			-			27,353
TOTAL CURRENT ASSETS		3,705,217			2,598,378			14,415,493			5,829,195		15,970,588			9,328,122			1,214,537			1,479,332			1,992,748			(4,024,964	)		52,508,646
PROPERTY AND EQUIPMENT, net		1,429,874			119,195			2,976,197			8,702,464		19,514,450			7,428,650			1,342,808			7,086,882			311,031			-			48,911,551
OTHER ASSETS
Other assets		314,497			-			29,521			78,913		2,237,187			116,298			28,444			-			(68,330	)		-			2,736,530
Intercompany receivables		862,304			(3,736,650	)		1,724,608			1,149,738		-			-			-			-			39,174,942			(39,174,942	)		-
Investment in subsidiary		-			-			-			-		-			-			-			-			61,054,109			(61,054,109	)		-
Deferred financing costs, net		-			-			-			91,428		273,911			-			-			-			187,581			-			552,920
Intangible assets, net		4,890,798			2,616,970			7,263,107			3,058,218		2,189,617			626,319			869,687			2,947,792			-			-			24,462,508
Goodwill		3,792,697			539,782			1,323,314			687,176		-			3,276,770			4,807,955			749,279			-			-			15,176,973
TOTAL OTHER ASSETS		9,860,296			(579,898	)		10,340,550			5,065,473		4,700,715			4,019,387			5,706,086			3,697,071			100,348,302			(100,229,051	)		42,928,931
TOTAL ASSETS	$	14,995,387		$	2,137,675		$	27,732,240		$	19,597,132	$	40,185,753		$	20,776,159		$	8,263,431		$	12,263,285		$	102,652,081		$	(104,254,015	)	$	144,349,128
L I A B I L I T I E S
CURRENT LIABILITIES
Accounts payable	$	526,069		$	393,772		$	6,225,400		$	721,266	$	3,237,076		$	1,636,294		$	301,257		$	443,311		$	524,372		$	(3,614,084	)	$	10,394,733
Accrued expenses and other liabilities		261,398			106,259			695,093			1,055,763		463,334			1,154,789			147,060			511,206			419,188			-			4,814,090
Deferred revenue		-			-			-			-		671,269			-			-			-			-			-			671,269
Line of credit		-			-			-			-		-			-			-			-			22,005,967			-			22,005,967
Current portion of long-term debt		419,020			-			-			188,994		952,646			1,621,746			359,582			-			18,235,855			-			21,777,843
TOTAL CURRENT LIABILITIES		1,206,487			500,031			6,920,493			1,966,023		5,324,325			4,412,829			807,899			954,517			41,185,382			(3,614,084	)		59,663,902
INTERCOMPANY BORROWINGS		1,729,350			1,410,428			5,590,373			5,000,814		5,109,420			5,109,443			2,021,101			2,011,313			-			(27,982,242	)		-
TERM DEBT AND CAPITAL LEASE OBLIGATIONS, net of current portion		880,451			-			2,641,352			4,825,394		14,550,766			3,153,350			1,760,902			2,756,194			-			(11,192,700	)		19,375,709
SUBORDINATED DEBT, net of current portion		-			-			-			-		-			-			359,581			-			-			-			359,581
DEFERRED TAX LIABILITY		2,083,237			-			-			-		-			-			-			-			-			-			2,083,237
OTHER LONG-TERM LIABILITIES		-			-			-			-		-												116,570			-			116,570
TOTAL LIABILITIES		5,899,525			1,910,459			15,152,218			11,792,231		24,984,511			12,675,622			4,949,483			5,722,024			41,301,952			(42,789,026	)		81,598,999
E Q U I T Y
COMMON STOCK		65,695			-			-			-		-			-			-			-			-			(65,695	)		-
ADDITIONAL PAID IN CAPITAL		10,432,741			-			-			-		-			-			-			-			-			(10,432,741	)		-
PREFERRED MEMBER UNITS
Members' contributions		-			-			-			-		-			-			-			-			8,200,000			-			8,200,000
Members' distributions		-			-			-			-		-			-			-			-			(411,123	)		-			(411,123	)
COMMON MEMBER UNITS
Members' contributions		-			1,795,891			15,604,395			3,088,016		4,578,862			10,500,000			4,000,000			5,600,000			50,224,674			(45,167,164	)		50,224,674
Members' distributions		-			-			-			-		(416,830	)		55,000			-			-			(525,230	)		361,830			(525,230	)
RETAINED EARNINGS (DEFICIT)		(1,402,574	)		(1,568,675	)		(3,024,373	)		4,716,885		11,039,210			(2,454,463	)		(686,052	)		(366,991	)		3,953,556			(6,252,967	)		3,953,556
TOTAL MEMBERS' EQUITY		9,095,862			227,216			12,580,022			7,804,901		15,201,242			8,100,537			3,313,948			5,233,009			61,441,877			(61,556,737	)		61,441,877
NONCONTROLLING INTERESTS		-			-			-			-		-			-			-			1,308,252			(91,748	)		91,748			1,308,252
TOTAL EQUITY		9,095,862			227,216			12,580,022			7,804,901		15,201,242			8,100,537			3,313,948			6,541,261			61,350,129			(61,464,989	)		62,750,129
TOTAL LIABILITIES AND EQUITY	$	14,995,387		$	2,137,675		$	27,732,240		$	19,597,132	$	40,185,753		$	20,776,159		$	8,263,431		$	12,263,285		$	102,652,081		$	(104,254,015	)	$	144,349,128

See Notes to Consolidated Financial Statements

- 24 -

VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

CONSOLIDATING BALANCE SHEETS (UNAUDITED)

 September 30, 2011

							Cottonwood
	St. Louis			Lenexa			Falls			Fredonia		Washington			Wichita			Tulsa			Cuba		Valent			Eliminations			Consolidated
A S S E T S
CURRENT ASSETS
Cash	$	1,000		$	147		$	454		$	521	$	(46,406	)	$	300		$	250		$	-	$	77,459		$	-		$	33,725
Trade receivables, net		765,930			674,186			4,964,681			1,616,385		2,753,228			1,964,415			218,745			-		19,876			(1,015,151	)		11,962,295
Inventories, net		2,245,230			1,965,396			3,269,901			2,281,434		6,326,505			4,026,838			402,172			-		569,371			(182,672	)		20,904,175
Prepaid expenses and other current assests		69,090			22,767			873			10,103		125,040			156,937			6,554			-		248,882			-			640,246
Deferred tax asset		32,378			-			-			-		-			-			-			-		-			-			32,378
TOTAL CURRENT ASSETS		3,113,628			2,662,496			8,235,909			3,908,443		9,158,367			6,148,490			627,721			-		915,588			(1,197,823	)		33,572,819
PROPERTY AND EQUIPMENT, net		1,190,010			143,102			2,490,876			2,147,875		13,379,254			5,271,482			1,525,976			-		278,497			-			26,427,072
OTHER ASSETS
Other assets		75,890			(1	)		-			36,869		3,833,541			237,587			55,635			-		5,601			(4,059	)		4,241,063
Intercompany receivables		862,304			(3,736,650	)		1,724,608			1,149,738		-			-			-			-		25,578,665			(25,578,665	)		-
Investment in subsidiary		-			9,594,470			-			-		-			-			-			-		51,963,134			(61,557,604	)		-
Deferred financing costs, net		-			-			-			-		164,317			-			-			-		58,647						222,964
Intangible assets, net		5,528,927			2,971,948			8,214,603			3,463,729		2,954,373			786,018			1,110,192			-		-			-			25,029,790
Goodwill		3,792,697			539,783			1,323,314			687,176		-			3,276,770			4,807,955			-		-			-			14,427,695
TOTAL OTHER ASSETS		10,259,818			9,369,550			11,262,525			5,337,512		6,952,231			4,300,375			5,973,782			-		77,606,047			(87,140,328	)		43,921,512
TOTAL ASSETS	$	14,563,456		$	12,175,148		$	21,989,310		$	11,393,830	$	29,489,852		$	15,720,347		$	8,127,479		$	-	$	78,800,132		$	(88,338,151	)	$	103,921,403
L I A B I L I T I E S
CURRENT LIABILITIES
Accounts payable	$	586,363		$	625,768		$	2,963,754		$	594,430	$	3,131,526		$	1,137,510		$	215,131		$	-	$	89,313		$	(1,019,206	)	$	8,324,589
Accrued expenses and other liabilities		(123,247	)		172,252			374,808			490,368		404,085			1,198,459			55,829			-		807,400			-			3,379,954
Deferred revenue		-			-			-			-		1,118,469			-			-			-		-			-			1,118,469
Line of credit		-			-			-			-		-			-			-			-		11,860,263			-			11,860,263
Current portion of long-term debt		-			-			-			-		432,817			-			359,582			-		20,086,272			-			20,878,671
TOTAL CURRENT LIABILITIES		463,116			798,020			3,338,562			1,084,798		5,086,897			2,335,969			630,542			-		32,843,248			(1,019,206	)		45,561,946
LINE OF CREDIT		924,839			717,440			1,992,173			4,337,783		2,270,482			3,014,136			831,491			-		-			(14,088,344	)		-
TERM DEBT AND CAPITAL LEASE OBLIGATIONS, net of current portion		1,039,677			729,362			3,979,047			-		9,142,355			2,973,709			2,768,231			-		-			(11,490,321	)		9,142,060
SUBORDINATED DEBT, net of current portion		-			-			-			-		-			-			719,163			-		-						719,163
DEFERRED TAX LIABILITY		2,541,350			-			-			-		-			-			-			-		-			-			2,541,350
OTHER LONG-TERM LIABILITIES		-			-			-			-		-			-			-			-		-			-			-
TOTAL LIABILITIES		4,968,982			2,244,822			9,309,782			5,422,581		16,499,734			8,323,814			4,949,427			-		32,843,248			(26,597,871	)		57,964,519
E Q U I T Y
COMMON STOCK		65,695			-			-			-		-			-			-			-		-			(65,695	)		-
ADDITIONAL PAID IN CAPITAL		10,432,741			-			-			-		-			-			-			-		-			(10,432,741	)		-
COMMON MEMBER UNITS
Members' contributions		-			11,114,582			15,604,395			3,088,016		4,578,862			10,610,000			4,000,000			-		45,245,854			(48,995,855	)		45,245,854
Members' distributions		-			-			-			-		(416,830	)		(55,000	)		-			-		(525,230	)		471,830			(525,230	)
RETAINED EARNINGS (DEFICIT)		(903,962	)		(1,184,256	)		(2,924,867	)		2,883,233		8,828,086			(3,158,467	)		(821,948	)		-		1,236,260			(2,717,819	)		1,236,260
TOTAL EQUITY		9,594,474			9,930,326			12,679,528			5,971,249		12,990,118			7,396,533			3,178,052			-		45,956,884			(61,740,280	)		45,956,884
TOTAL LIABILITIES AND EQUITY	$	14,563,456		$	12,175,148		$	21,989,310		$	11,393,830	$	29,489,852		$	15,720,347		$	8,127,479		$	-	$	78,800,132		$	(88,338,151	)	$	103,921,403

See Notes to Consolidated Financial Statements

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VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF INCOME (UNAUDITED)

Nine Months Ended September 30, 2012

							Cottonwood
	St. Louis			Lenexa			Falls			Fredonia			Washington			Wichita			Tulsa			Cuba			Valent			Eliminations			Consolidated
NET SALES	$	5,403,022		$	6,081,307		$	25,235,568		$	12,022,291		$	23,328,945		$	16,585,233		$	3,360,285		$	4,704,817		$	-		$	(16,250,281	)	$	80,471,187
COST OF SALES		4,905,185			5,083,892			23,095,710			9,246,244			18,952,585			14,248,142			2,467,700			4,183,969			66,611			(16,049,798	)		66,200,240
GROSS PROFIT		497,837			997,415			2,139,858			2,776,047			4,376,360			2,337,091			892,585			520,848			(66,611	)		(200,483	)		14,270,947
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		740,231			459,253			1,088,655			598,769			1,951,103			782,275			412,117			811,090			3,248,254						10,091,747
OPERATING INCOME (LOSS)		(242,394	)		538,162			1,051,203			2,177,278			2,425,257			1,554,816			480,468			(290,242	)		(3,314,865	)		(200,483	)		4,179,200
OTHER INCOME (EXPENSE), NET
Equity earnings of subsidiaries		-			-			-			-			-			-			-			-			3,218,549			(3,218,549	)		-
Interest expense		(54,663	)		(20,080	)		(121,866	)		(148,846	)		(374,231	)		(145,487	)		(90,814	)		(51,463	)		(311,289	)		-			(1,318,739	)
Management fee		(48,000	)		(90,000	)		(135,000	)		(135,000	)		(162,000	)		(135,000	)		(45,000	)		(45,833	)		-			-			(795,833	)
Corporate expense allocation		(270,000	)		(450,000	)		(450,000	)		(450,000	)		(630,000	)		(450,000	)		(225,000	)		(75,000	)		3,000,000			-			-
Miscellaneous income (expense), net		-			(4,558	)		-			-			137,212			-			-			3,799			(116,570	)		-			19,883
Gain (loss) on disposal of assets, net		-			-			-			-			-			-			(914	)		-			-			-			(914	)
TOTAL OTHER INCOME (EXPENSE), NET		(372,663	)		(564,638	)		(706,866	)		(733,846	)		(1,029,019	)		(730,487	)		(361,728	)		(168,497	)		5,790,690			(3,218,549	)		(2,095,603	)
INCOME BEFORE INCOME TAXES		(615,057	)		(26,476	)		344,337			1,443,432			1,396,238			824,329			118,740			(458,739	)		2,475,825			(3,419,032	)		2,083,597
INCOME TAX PROVISION		(392,228	)		-			-			-			-			-			-			-			-			-			(392,228	)
NET INCOME (LOSS)		(222,829	)		(26,476	)		344,337			1,443,432			1,396,238			824,329			118,740			(458,739	)		2,475,825			(3,419,032	)		2,475,825
NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST		-			-			-			-			-			-			-			(91,748	)		(91,748	)		91,748			(91,748	)
NET INCOME (LOSS) ATTRIBUTABLE TO VALENT AEROSTRUCTURES, LLC	$	(222,829	)	$	(26,476	)	$	344,337		$	1,443,432		$	1,396,238		$	824,329		$	118,740		$	(366,991	)	$	2,567,573		$	(3,510,780	)	$	2,567,573

See Notes to Consolidated Financial Statements

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VALENT AEROSTRUCTURES, LLC AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF INCOME (UNAUDITED)

Nine Months Ended September 30, 2011

							Cottonwood
	St. Louis			Lenexa			Falls			Fredonia			Washington			Wichita			Tulsa			Cuba		Valent			Eliminations			Consolidated
NET SALES	$	3,900,609		$	7,580,361		$	21,172,899		$	8,889,220		$	17,393,807		$	12,526,204		$	2,498,960		$	-	$	-		$	(9,853,835	)	$	64,108,225
COST OF SALES		3,597,439			6,695,959			20,597,059			6,288,894			12,273,438			10,960,681			2,024,919			-		77,265			(9,891,465	)		52,624,189
GROSS PROFIT		303,170			884,402			575,840			2,600,326			5,120,369			1,565,523			474,041			-		(77,265	)		37,630			11,484,036
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		601,527			359,394			932,753			497,291			1,396,795			1,014,503			217,081			-		2,666,810			-			7,686,154
OPERATING INCOME (LOSS)		(298,357	)		525,008			(356,913	)		2,103,035			3,723,574			551,020			256,960			-		(2,744,075	)		37,630			3,797,882
OTHER INCOME (EXPENSE)
Equity earnings of subsidiaries		-			(170,691	)		-			-			-			-			-			-		2,630,110			(2,459,419	)		-
Interest expense		(51,034	)		(120,002	)		(142,980	)		(182,618	)		(85,766	)		(253,207	)		(184,119	)		-		(621,373	)		-			(1,641,099	)
Management fee		(75,000	)		(112,500	)		(150,000	)		(112,500	)		(150,000	)		(112,500	)		(37,500	)		-		-			-			(750,000	)
Corporate expense allocation		(322,503	)		(393,750	)		(487,501	)		(393,750	)		(562,500	)		(393,750	)		(131,247	)		-		2,685,001			-			-
Miscellaneous income (expense), net		-			(7,600	)		50,000			-			(12,107	)		55			-			-		-			-			30,348
Gain (loss) on disposal of assets, net		-			14,873			(460	)		-			-			(78,084	)		-			-		-			-			(63,671	)
TOTAL OTHER INCOME (EXPENSE)		(448,537	)		(789,670	)		(730,941	)		(688,868	)		(810,373	)		(837,486	)		(352,866	)		-		4,693,738			(2,459,419	)		(2,424,422	)
INCOME BEFORE INCOME TAXES		(746,894	)		(264,662	)		(1,087,854	)		1,414,167			2,913,201			(286,466	)		(95,906	)		-		1,949,663			(2,421,789	)		1,373,460
INCOME TAX PROVISION		(576,203	)		-			-			-			-			-			-			-		-			-			(576,203	)
NET INCOME (LOSS)	$	(170,691	)	$	(264,662	)	$	(1,087,854	)	$	1,414,167		$	2,913,201		$	(286,466	)	$	(95,906	)	$	-	$	1,949,663		$	(2,421,789	)	$	1,949,663

See Notes to Consolidated Financial Statements

- 27 -